As per the calculation section of Question 2, "there is a sale of 120 bottles @ $250 / bottle, giving a big push in revenue of $30,000. "
But, instead of 120 bottles, there is a sale of 192 bottles (120 bottles from kick start capital and 72 purchased in Year 1). Hence, the total revenue in Year 6 is $48,000.
Considering this, breakeven should be achieved earlier by the 13th year, instead of the 15th year.
You would be right… if you assume that in year 13 you stop reinvesting in new bottles. But I don't see why you would assume that. So in year 13, while it seems that get to +2.1k positive, please notice that you simultaneously invest 13.2k in new bottles, therefore you remain in the negative (-11.1k).
This is the cash flow per year. Each bullet number is the year and between parenthesis the accumulated cash flow
(edited)
Hi Abhinav,
Pedro has laid it out nicely - just remember, you can't make assumptions in cases without confirming with the interviewer! Make sure you revise your understanding of breakeven…it's very rare that a condition will change once n >2 or 3
Hi Abhninav,
I would suggest you share the entire case prompt and questions here, otherwise people will not know what case you are referencing and will therefore not be able to help you as effectively.
Thank you
stephan
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Thanks a lot, Pedro. Got it!
Hi Pedro! Would there be an easier formula to get to this result? I also calculated it in the detailed way as you did but I would not believe to have enough time to do it this way during the interview:) Best, Alina
Hi Pedro, I still not understand the explanation. I have the same result as Abhinav. The point for me is at year 6 you are putting +30k +18k -13.2k (-44.7k) And the solution for Q2 is saying that he would sell a kick start of 120 bottles *250=30k$. But the solution in Q1 is saying that the kick start to sell at year 6 is 192 bottles and not 120! So the question is not assuming that he stops investing but the question here what is the number of bottles of the kick start: in question 1 it is 192 and in question 2 it is 120! regarding the given data it is 192 normally. Thank, Regards, Bassem
Hi Bassem, You buy 120 initial bottles. You can either consider you sell them in the last day of year 5 or first day of year 6, doesn't make a difference when you consider accumulated cash flow. So the question is really on how to account for the 72 bottles you buy in year 1. I don't really understand the doubt. You buy 6 bottles every month during the 1st year, so a total of 72 bottles, and then sell them after 5 years, which is the 6th year. So you sell 120 bottles on day one of 6th year, and then 72 bottles throughout the 6th year. I guess what you are missing is that you buy 6 bottles every month during the first year, which is in the given prompt. Hope this makes it clear.