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McKinsey PST Problem:

Paul

Hi all,

I have a question from the sample McK PST they have on their website. I don't quite understand their explanation, so I decided to ask it here.

If total Innovation Capital in Exhibit 1 (now at 13.8) were to grow by 5% per year in the future, which of the following would be the MINIMUM required annual growth in Human Capital (now at 3.3) that would see it represent more than half of total Innovation Capital in 10 years?

A: 10% B: 15% C: 20% D: 25%

NOTE: Innovation Captial is comprised of three different kinds of 'Capital' and the question is concerned with Human Capital.

How does one calculate this? Thanks

Currently non-active expert
Expert
replied on 01/14/2018

Hey Paul,

first, you need to compute the value of innovation capital in 5 years: 13.8 * 1.05 ^ 5 = 17.6 (it's always about adding 5% each year 5 times)

then you need to try to check what are the potential values of human capital in 5 years time for the different options. Then lower percentage one that still allows you to reach a value which is higher than 8.8 (half of 17.6) is the right choice (you need to test the several options, as a tip i would start by trying out option b - in trial questions is better to start by middle options)

best

Bruno

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