Incremental revenue and saving on stadium rental costs

College Football
New answer on Jan 08, 2020
3 Answers
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Anonymous A asked on Jan 07, 2020

Hi!

One question is why is in a second part revenue from building a stadium referred to as "incremental"?

Then, although intuitively OK, I have trouble fully accepting that saving on stadium rental costs is included now in this "incremental revenue".

Can someone shed more light of why is so?

Thanks!

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Luca
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updated an answer on Jan 07, 2020
BCG |NASA | SDA Bocconi & Cattolica partner | GMAT expert 780/800 score | 200+ students coached

Hello there,

Here there are the answers to your questions:

  • The revenue form building a stadium is defined "incremental" because you are considering the same source of revenues (e.g. students fees) plus a major income from selling more tickets and the saving of the rental. That's way you calculate the total revenues from selling tickets and you do: New revenues - Old revenues = Savings of rental + New tickets - Old tickets You can consider just the incremental revenues because you are comparing 2 options and instead of comparing the total revenues and costs, you just compare the additional revenues and costs.
  • Saving on stadium rental is not a real revenue, you are right. They should have chosen another term, but it goes in the business case with "positive" sign. You have basically to compare revenues and savings with costs.

Does it make sense?

Hope it helps,
Luca

(edited)

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Anonymous A on Jan 07, 2020

It does, thanks!

Sidi
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replied on Jan 07, 2020
McKinsey Senior EM & BCG Consultant | Interviewer at McK & BCG for 7 years | Coached 350+ candidates secure MBB offers

It is just a matter of interpretation. Doesn't make a difference mathematically. But you are right, it probably makes more sense to view this as an item that decreases the incremental total costs by $1.2m.

Cheers, Sidi

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Clara
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replied on Jan 08, 2020
McKinsey | Awarded professor at Master in Management @ IE | MBA at MIT |+180 students coached | Integrated FIT Guide aut

I am with Sidi here, seems to me a wording issue more than any other thing.

If this happens in the interview, don´t worry, since you have the possibility to double-check on the spot with the interviewer -this is the problem when you are alone with your screen-.

Cheers!

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Luca gave the best answer

Luca

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BCG |NASA | SDA Bocconi & Cattolica partner | GMAT expert 780/800 score | 200+ students coached
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