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How do we know in 15 years it's going to break even
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Hello!
Precisely for the high amount of questions (1) asked by my coachees and students and (2) present in this Q&A, I created the “Math & Formulas - Economic and Financial concepts for MBB interviews”, recently published in PrepLounge’s shop (https://www.preplounge.com/en/shop/prep-guide/economic_and_financial_concepts_for_mbb_interviews).
After +5 years of candidate coaching and university teaching, and after having seen hundreds of cases, I realized that the economic-related knowledge needed to master case interviews is not much, and not complex. However, you need to know where to focus! Hence, I created the guide that I wish I could have had, summarizing the most important economic and financial concepts needed to solve consulting cases, combining key concepts theorical reviews and a hands-on methodology with examples and ad-hoc practice cases.
It focuses on 4 core topics, divided in chapters (each of them ranked in scale of importance, to help you maximize your time in short preparations):
- Economic concepts: Profitability equation, Break even, Valuation methods (economic, market and asset), Payback period, NPV and IRR, + 3 practice cases to put it all together in a practical way.
- Financial concepts: Balance sheet, Income statement/P&L and Performance ratios (based on sales and based on investment), +1 practice case
- Market structure & pricing: Market types, Perfect competition markets (demand and supply), Willingness to pay, Pricing approaches, Market segmentation and Price elasticity of demand, +1 practice case
- Marketing and Customer Acquisition: Sales funnel, Key marketing metrics (CAC and CLV) and Churn, +1 practice case
Feel free to PM me for disccount codes for the guide, and I hope it helps you rock your interviews!
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Hi Alex,
I think this is an interesting question that may be relevant for many people. I would be happy to share my thoughts on it:
- The solution as to why the break-even point is at the end of year 15 is explained in section "II. Analysis - Key question 2: What are the economics of the cellar over time in terms of money earned and money spent?".
- After the initial investment costs of $13,500, you have $13,200 in costs per year without any sales. At the beginning of year 6, when the wine has matured for 5 years, you create sales for the initial investment of $30,000. In the following years, you create sales of $18,000, resulting in yearly profits of $18,000 - $13,200 = $4,800. However, these profits need to offset the costs for the first 5 years when no sales were created, resulting in a break-even point at the end of year 15.
If you would like a more detailed discussion on how to address your specific situation, please don't hesitate to contact me directly.
Best,
Hagen
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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.
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Hey Alex,
Remember that all cases have solutions included! Here you can see their answer below.
Now, please do let us know if this isn't clear, and, importantly where/why you are still confused.
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