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Anonymous A
on Mar 19, 2020
Global

Hi,

one thing that is puzzling me is that while answering Q1 it is assumer that after year 5 192 bottles are sold (i.e 120 kick-start + 72 bought in y1).

Yet, when in the answer for Q2 it states that after year 5 120 bottles are sold  - with the 72 from y1 being sold in y6 (this was also my logical intuition)

Am I missing out on something?

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Anonymous
on Mar 20, 2020

Hi,

Agree the case is not fully clear on that,

The correct way to look at it is the following:

- Consider that exactly after 5 years you can only sell the kick-start.

- You will then sell six bottles every month for the following 12 months up to the first day of year 6.

If you look at the plot, the increase from year 5 to year 6 is almost 15 k which is consistent with:

Kick-off (\$30.000) + 72 bottles (18.000) - costs (13.200) =14.800

please don't hesitate to contact me in case you have any doubt,

Thanks,

Ale

5
Luca
Coach
on Mar 21, 2020
BCG |NASA | SDA Bocconi & Cattolica partner | GMAT expert 780/800 score | 200+ students coached

Dear anonymous,

You are right, the solution is not really clear. I have tried to explain how to interpret the timelines in the following answer, that could be useful : https://www.preplounge.com/en/consulting-forum/how-do-we-know-that-the-revenue-generated-is-not-reinvested-6221

I will repost here the part that is significant for your question:

• Assume that you buy the kick-start at time 0
• Assume that you buy and sell the investments bottles during the whole year. It means that, on average, you can consider the bottles acquired at June of the first year (0.5), June of the second year (1.5) ecc.
• At the end of the 5 years you have: kick-start bottles + 5 * yearly bottles + drinking bottles =120 + 5 * 72 + 50 = 530
• At the end of year 6 you have: bottles year 5 + new bottles - sold bottles = 530 + 72 - 192 = bottles at year 5 - 120
• Analyzing the cashflow, at the end of year 5, you have: 120 bottles ready to be sold and 72 bottles of 4.5 years that you can not sell and that will be sell at 5.5 years

Does it make sense?

Best,
Luca

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