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BCG Interview Question - Understanding

BCG
Recent activity on Apr 20, 2019
4 Answers
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Anonymous A asked on Apr 18, 2019

Hi there,

I have a question regarding some information another user posted in 2016:
He provided information about a case that was given in the second round of BCG.

"Your client is a german car rental company, charges 250 Euro for renting out a mercedes s-class. the customer can ride 300km for free and gets charged an additional fee for every extra-km. how much should our client charge in order to achieve the same profit margin for the first 300km as for every km thereafter.

very unconventional case; key is costs=purchase price mercedes s-class - sale price mercedes s-class after 20 Th driven km. (70000-60000 = 10000). thus costs (for each km)=10000D/20000km=0.5D/km"

I struggle to understand the approach that he suggested. Could someone elaborate? I do not see how the 20k km should be meaningful here.

Thank you :)

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Ian
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Content Creator
replied on Apr 19, 2019
#1 BCG coach | MBB | Tier 2 | Digital, Tech, Platinion | 100% personal success rate (8/8) | 95% candidate success rate

Hi, could you please provide a link to the case or provide more details? Quite hard to answer with the current information provided. Then we can help you!

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Anonymous replied on Apr 20, 2019

At a high level, I would imagine that they price an allocation of operating costs and the cost of depreciation into the first 300km driven. Every mile driven thereafter could be just a function of depreciation + previous profit margin.

To understand this a little better, I would probe into the costs per rental and develop a margin for the first 300km. After that, you can come up with the price based on depreciation of every next km + margin (%).

By no means is this the only way to think of this problem. This is just the approach I would take given the information.

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Anonymous A replied on Apr 19, 2019
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Anonymous B replied on Apr 19, 2019

Well we have to note that cars have an accelerated depreciation whereby the car loses bulk of its value in its ifrst few years. Therefore the costs assiigned to the car should be different for different phases. To achieve the same profit margin, the price charged would decrease as the car age.

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