Am I the only one who finds this case really confusing?

Question

1. (iii) After you have provided the client with an overview of the market potential, he wants to know
how many potential customers use the possibility of mobile payment and what turnover is
attributable to the parking app service. Please calculate the turnover of the parking app.

(?) It seems like a market sizing exercise, but in the solution section there is no explanation of the logic provided, and in addition to that there's a breakdown by year. How forecasted values can be estimated?

2. Could you explain the FCF (direct and indirect) formula?

3. And the approach taken in this case to calculate NPV.

Sorry if those are stupid questions

Answer 1

Hi Aidana,

The case has 3.1 stars out of a possible 5, so I'd say you're certainly not the only one :)

I personally don't think it's a great case either.

1) You have to be careful just jumping into market sizing in a case. Sometimes all they need is for you to estimate volumes or % market share off of provided data.

2) The case does give a full breakdown of FCF in the “Task 2" section. You can see what's calculated there.

3) The NPV that they've done here is crazy and will never happen in a real case. Instead of doing a perpetuity NPV (which assumes either steady cashflows or steadily increasing cashflows), they've done an annuity NPV.

However, you'll never need to do an annuity NPV more than 2-3 years out.