Calculation of number of wine bottles in Year 5

Question

Hi Team,

In Year 5, why aren't we considering the sale of 120 bottles (investment cellar in Year 0)? Instead, we are including these 120 bottles along with the 72 bottles from Year 1, in Year 6 sale calculation, why is this so? I would like to understand the logic behind the same.

Thanks in advance!

Answer 1

This is how the cash flow should look like:

This is the cash flow per year. Each bullet number is the year and between parenthesis the accumulated cash flow

-13,5k -13,2k (-26,7k)
-13,2k (-39,9k)
-13,2k (-53,1k)
-13,2k (-66,3k)
-13,2k (-79,5k)
-13,2k +30k +18k (-44,7k)
-13,2k +18k (-39,9k)
-13,2k +18k (-35,1k)
-13,2k +18k (-30,3k)
-13,2k +18k (-25,5k)
-13,2k +18k (-20,7k)
-13,2k +18k (-15,9k)
-13,2k +18k (-11,1k)
-13,2k +18k (-6,3k)
-13,2k +18k (-1,5k)
-13,2k +18k (3,3k) → Break Even.

Answer 2

Hi there,

As the case states, you are selling the 120 initial investment in year 5!

Answer 3

Hi there,

I would be happy to share my thoughts on it:

It seems like in the case study, the initial investment is considered to be made in year 0, and as a result, the sale of 120 bottles takes place after 5 years, i.e., in year 5.

If you would like a more detailed discussion on how to best prepare for your upcoming interviews, please don't hesitate to contact me directly.

Best,

Hagen

Answer 4

Hello,

I think the case treats the initial investment as “Year 0”, and the time accounting only starts after you start drinking and buying new wine.

This is why the case says “Thus at the end of year one, I should have 120+72=192 bottles in the investment section or 242 bottles in the total cellar”

Hope this clarifies!