Problem Definition
A wealthy client has recently bought an island in the Caribbean. She has engaged us to identify possible uses for her new island.
A wealthy client has recently bought an island in the Caribbean. She has engaged us to identify possible uses for her new island.
Context
This case was assigned during a final MBB round.
The case tests the candidate's ability to:
A candidate-led approach is recommended but, if he/she prefers, an interviewer-led style is fine as well.
Push the candidate towards a structured and non-conventional brainstorming especially at the beginning of the case.
The case must be completed within 20-25 minutes.
Scoring Scheme
The assessment should be delivered across 4 main areas, with scores ranging from 1 to 5 (5 being the highest):
Overall approach to the problem, logical and relevant framework including complete issue trees and implementable solutions.
Hypothesis-driven approach, a general understanding of how businesses function as well as a reasonable differentiation between relevant and irrelevant information.
Comprehensible communication of own approach and recommendations even when faced with uncertainty or confusing information, appropriate response to the interviewer's questions.
Proactive in identifying and communicating issues, right balance of confidence and humility,
Provide the following information if requested:
RECOMMENDED STRUCTURE
Provide the following information if requested:
RECOMMENDED ANSWER
The candidate should realize that:
Maximum no. of villas = Island’s circumference/Total villa's width = 2 * Pi (≈ 3.14) * 1,000 m / 50 m ≈ 125 villas
RECOMMENDED ANSWER
Total Cost of Investment
Recommended investment cost segmentation:
Total investment = $50M (island) + $60M = $110M
Total Revenue
High Season | Low Season | |
Number of days | 180 | 180 |
Price/day/villa | 600 | 400 |
Occupancy | 90% | 50% |
Total revenues = Total revenues (high season) + Total revenues (low season) = 180 * 600 * 125 * 90% + 180 * 400 * 125* 50% = $16.65M
Total Recurring Costs
Total Costs | Dollar Amount |
Fixed | $2M/year |
Variable | $100/day/villa |
A good candidate should note that variable costs arise only from occupied villas.
Recommended cost segmentation:
Total costs = Total fixed costs + Total variable costs = Total fixed costs + (Total variable costs high season + Total variable costs low season) = $2M + $100 * 125 * ( 180 * 90% + 180 * 50% ) = $5.15M
Discount Rate
Discount rate = 10%
Total Recurring Profits and NPV Calculation
Total recurring profits = Total revenues - Total recurring costs = $16.65M - $5.15M = $11.5M ≈ $12M (to make the following calculation easier for the candidate)
NPV = Total recurring profits / Discount rate - Total investment = $12M / 10% - $110M = $10M
RECOMMENDED ANSWER
Please comment the case with your answers (You can click on "Ask a question" above) and I would be glad to assess them!