Darden Case Book 2023
Darden Case Book 2023
Darden Case Book 2023
2019-2020 Edition
1
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9 New The 2019-2020 Case Book features 9 brand new cases that
Cases will test a broad array of knowledge areas and math concepts
The 2019-2020 Darden Case Book has been made possible by Guy
7 Schwartz, Steven McIntyre, Ryan Ritchie, Spencer Small, Aaron
Writers Wilson, Michael Hoban, and Saule Kassengaliyeva of the Darden
MBA class of 2020
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Q1 Q2 Winter Break
Q1 Q2 Winter Break Q3
Target Case & Communication Score: (xx/25) 12/25 18/25 23/25 25/25
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Communicating the correct message non-verbally is as important as the content that is communicated in a case
interview. In order to recommend a candidate, interviewers must:
1. Feel comfortable putting the candidate in front of a client
2. Believe they would enjoy spending 60+ hours a week with the candidate on a project team
F Ba Web e (b e e e a e a ):
The case interview is an example of a real business problem based on your interviewer's past work experiences. The problems you will
encounter are not designed to be brainteasers, or theoretical problems designed to stump you, but rather to reflect the challenges
that our clients face. These real-life examples allow you to learn more about the type of work we do and the impact we have with our
clients.
The firms look for:
The approach you take to solving a problem
How analytical and creative your thinking is
Your usage of data to quantify your recommendation(s)
Your communication skills in conveying your ideas
How you would suggest implementing those proposals"
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Profitability: Analyze potential sources of profit declines and identify ways to improve
profitability
Growth: Identify opportunities for the client to optimally grow revenues or increase
market share
Acquisition / Sale: Determine whether the client should purchase another business or
sell an existing part of the company
Your pitch should include: Where you have been / what you have done, who / where you are now, and
what you are interested in going forward
Tell Me
About All answers must include: Relative skills & experiences, key transition points in your career, and a career
Yourself objective
Strong answers have: Po erf l hook your value proposition that highlights how you have the
competencies they are recruiting for
Firm & industry fit: In er ie ee sho ld ha e a deep nders anding of a firm s c l re f nc ional e per ise
Why
Firm X or
and working style
Consult- Industry interest: Interviewee should highlight experiences they want to gain and skills they can bring
ing Strong answers have: This question answered in opening pitch, structured reasons why, and answers
tailored to your prior experiences and future aspirations
Experience/ behavioral: In er ie ee sho ld demons ra e leadership abili dri e taking initiative, and
Tell Me professionalism
About A CAR: Context / challenge you faced, the action that you demonstrated, and the result of your actions
Time
W e
Strong answers have: Concise response, a learning element if the situation helped you grow, utilizes
structure, and engages the interviewer with energy, emotion, and authenticity
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All case prompts will introduce the Clarifying questions should always be
company name, industry, and a brief high level (ex. Context on products, core
description of what the client wants goal of the client, how client makes
money)
Some prompts tend to leave the primary
objective to be vague Don a k fo de ailed in igh ha o
can include in framework (ex. Details on
Most prompts leave out the business profitability drivers, market trends, etc )
context of the clients core products or
operations in question Feel free to ask further clarifying
questions as you are building framework
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By laying out a framework for analysis at the beginning of a case interview, you are not only keeping yourself organized,
but you are providing a visual roadmap for the interviewer to see how you are thinking and where you are going.
MECE: Mutually Exclusive, Collectively Exhaustive There is one perfect framework for every case
Detailed but not lost in the weeds There is a finite number of possible frameworks
that will provide answers to every case
Thorough but not wasteful
Frameworks are not that important to the overall
Insightful but not presumptive interview
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Framework Example
Prompt & Clarifying Q. Framework Conclusion/
Exhibits & Analysis Brain-storming
Next Steps
Some frameworks are better than others to address a particular case. There are always multiple approaches that can
yield the same answer.
Evaluation Criterion 1
Compare Company A, Company B, and Company
A+B along various meaningful criteria Evaluation Criterion 2
Evaluation Criterion…
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Although most case mathematics will involve simple arithmetic, it is still very easy to make mistakes. Follow the tips
below to ensure that you are set up for success.
Tips for Success
Sanity Check Mistakes are OK Use Shortcuts Talk it Through So What Practice
Make sure your You can recover Round when Explain each step Tie the numbers prac ice n il o re
numbers make from mistakes, just needed and that you are doing back to the comfortable doing
sense in the context don make he manage o r ero s with your question and math in front of an
of the case same mistake twice appropriately interviewer explain the interviewer
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A. Calculates the discounted return on A. Calculates the amount of time required A. Calculates the number of units sold to
investment over time to pay back an upfront investment pay back an upfront investment
B. Requires cash flows (revenues - costs B. Requires cash flows per period and an B. Requires per-unit selling price, per-unit
over a time period), discount rate, upfront cost costs, and upfront investment cost
timeframe, and an upfront cost
C. Payback period will be extremely long, C. Break-Even Sales = Upfront Investment
C. Some cases will assume a calculation extremely short, or you will be given Cost/(Per-Unit Selling Price - Per-Unit
into perpetuity (timeframe = forever). some type of specific criterion the Costs)
client uses (e.g. 5 years)
D. Perpetuity: (Cash Flow per Period /
Discount Rate) - Upfront Cost D. Payback Period = Upfront Cost / Cash
Flows per Period
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Example Scenario
How much money will the client save? A. Structure is crucial. The more you can structure information
like an Excel Spreadsheet, the better
Current $ Mater. / # Labor / Volume Total I. Helps you recover information
State Unit Unit Cost II. Your interviewer can follow along
Product 1 15 10 1M = $25M III. It makes you look organized
Product 2 5 20 2M = $50M B. Write do n promp s s ch as Ho m ch mone ill he
clien sa e and labor red c ion per ni o keep he
= $75M
goal fresh in your mind
10% Labor Reduction on a per unit basis C. Circle any important numbers (Total Savings =$5M) that may
be relevant to your final recommendation
Future $ Mater. / # Labor / Volume Total D. Go Deeper by speaking to the context of the number, ex: I
State Unit Unit Cost see the total savings is $5M, which represents about 6% of
Product 1 15 9 1M = $24M our total costs. This seems like a reasonable deduction but
Product 2 5 18 2M = $46M we should figure out how this labor reduction is being
generated and seek to understand any negative
= $70M
nanticipated conseq ences as a res lt of it
Total Savings = $5M
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The key to brainstorming is structure. The candidate should first devise two or more "buckets" or categories to organize
his/her thoughts. These constraints make it easier to be creative and provide a more vivid mental model to pull from.
Example Brainstorming Frameworks:
Internal vs. External The Supply Chain
Internal represents any aspect internal to the client, (e.g. Each step in the supply chain is a category: raw materials,
products, brand, financials, leadership, etc.) manufacturing, warehouse, transport, retail, customer, etc.
External represents factors external to the client, (e.g. market Useful for exploring causes or solutions to cost problems
trends, geopolitical dynamic, competition, etc.)
There are three key elements that the interviewer should include while wrapping up the final portion of the case.
1. Recommendation Say the action that the client should take and cite the key insights
in your analysis that have led you to the conclusion
Mention the factors in the case that the client should be aware of
2. Risks & Concerns that may impact the client or the recommendation (Concerns
should not contradict your overall recommendation)
While you can take a minute before you gather your recommendation, it is crucial to keep this segment concise
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Industry Overview
Please note that these are commonly tested industries; This list is not exhaustive
of all the industries tested
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Important Terminology
3. Contribution Margin (CM):
SKU: Stock Keeping Unit Refers to a unique item sold in a store
In-stock: Percent of items that are on the shelves and available for sale vs. what the total display can = (Sales Variable Costs)
hold
CRM: Customer Relationship Management: Strategy & tools designed to boost profitability and
CM Rate = (CM)
strengthen customer loyalty by using data also the name for software that facilitates this
Loss Leader: Merchandise sold at a loss to attract new customers or stimulate other profitable sales
(Sales)
Mark-up: Percentage added to the cost of product to get selling price
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*Please note that not all trends, terminologies, and calculations are listed above
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Important Terminology
Important Considerations:
Upstream (E&P): Exploration and Production Process involving the finding, drilling, and producing
of crude oil and natural gas or liquified natural gas (LNG) Transportation / Distribution costs
Midstream: Focuses on the processing, storage, marketing, and transportation of oil and natural gas. Storage Costs
(Most pipe-line companies fall in this category) Production Costs: Labor + Materials
Downstream: Includes oil refineries, petrochemical plants, petroleum products distributors, retail Plant Development Costs
outlets and natural gas distribution companies Depreciation & Taxes
OPEC: Organization of Petroleum Exporting Countries Cartel of 14 nations that coordinate Overhead
petroleum policies.
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Important Terminology
Load Factor: Measures the capacity utilization of transportation services and is equal to the average
actual utilization divided by the maximum capacity Important Considerations:
PRASM: Passenger Revenue per Average Seat Mile Or RASM (revenue) is the revenue generated per
available set miles in which ASM = number of seats available x number of miles flown. Gasoline / Fuel Prices
Logistics: The detailed coordination of complex operations involving many people, facilities, or supplies. Carrying Capacity
FOB: Free On Board Represents the point at which the sale of a freight cargo is considered complete. Range / Distance
FOB shipping means o nership is ransferred once he prod c is shipped of FOB shipping poin Destination Routes
means ownership is transferred once the product is delivered Maintenance Costs
LTL & FTL: LTL (Less than Load) Small freigh ha doesn fill a r ck hich is generall more e pensi e Depreciation
to ship, (FTL) Full Truck Load) Large shipments that fill a trailer and are thus cheaper to ship
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(JIT) Just-in Time Inventory: P ll demand in en or s s em in hich assembl ma erials and s ppor
items are delivered as needed to minimize raw material inventory Important Considerations:
Commodity: An interchangeable non-differentiated product or material that is sold freely. (Most
agricultural products are commodities) Raw Material Costs
Bottleneck: The resource in a manufacturing process that is working at max capacity and thus limits the Labor & Wages
output of the entire production Capacity Constraints / Bottlenecks
Bushel: A unit of dry measure (1 cubic foot) for grain, fruit, etc., equivalent to 8 gallons of liquid Commodity or Not?
Out-source: Process of contracting an outside party to complete a production or service task for a Overhead Costs
business. Typically done to save cost or due to a lack of expertise Supplier & Buyer Relationships
Depreciation
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Important Terminology
Important Considerations:
AUM: Assets Under Management: Market value of all the financial assets that a firm manages on
behalf of all of their clients and themselves. Includes capital raised by investors and leaders of a firm Current Portfolio
Private Equity: Composed of investors and funds that invest directly into private companies or Exit Strategy & Time Horizon
con er p blic companies o pri a e companies o impro e he arge compan s opera ions and Acquisition Price
financials with the goal of extracting a financial return from the company and reselling it another firm Employee & Customer Relationships
or the public at a profit Market Trends
M&A: Mergers & Acquisition: Mergers are when two companies comes together to make a new Tax & Regulatory Implications
entity (Dow Chemical & Dupont) = DowDuPont, while an acquisition is where the smaller company is Client Risk Profile
consumed by the larger company (Amazon + Wholefoods) = Amazon
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Important Terminology
Carrier: A company that is authorized by regulatory agencies to operate a telecommunications service
Important Considerations:
system: AT&T, Verizon, T-Mobile
OEM: Original Equipment Manufacturer A company whose goods are used as components in the Regional Competition
Competitors
product of another company that sells the finished goods to users
New Entrants
LAN: Local Area Network: Locally owned and administered data network that runs primarily through
Barriers to Entry
cables ex. Ethernet connection Substitutability
Fiber Optic: Transmission connectivity via glass strands which are 100x more faster than traditional Contract lengths & stipulations
copper wires for more efficient cell phone and internet connections Infrastructure
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Darden Casebook
2019-2020
To get the most authentic casing experience, you should aim to do at least one behavioral interview question at the
start of each case and have your interviewer take note of your timing
Indicates the overall difficulty of the case with a combination of mathematical technicality and creative
thinking ability. It is advised that you start with single star cases and work your way up to three star cases
Indicates the degree of math difficulty in the case. Harder cases typically have multiple stages of calculations
with multiple opportunities for mistakes
Indicates how creatively intensive the case will be. The more qualitative, the more thorough your framework
should be. These cases will place more emphasis on the brainstorming elements
Gamebox
Gaming/Entertainment
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01 | CASE: GAMEBOX
B E H AV I O R A L
INTERVIEW
GAMEBOX QUESTION:
Gaming/Entertainment
1. What is your
Prompt: favorite class at
The CEO of GameBox, a well-known video game company, has approached Darden and why?
us to help decide what type of new game the company should develop. How
would you advise her?
2 . Te l l m e a b o u t a
Clarifying Information: Note: Provide this only if corresponding questions are asked. time where you had
to make a decision
W a e CEO a a? with limited
To maximize profit.
information. What
How does Gamebox make money? was your approach?
Gamebox makes both its own games and consoles (similar to Nintendo). They make money by selling new consoles
and video games. They are the sole producer of Gamebox games. Games are almost entirely sold digitally on
Gamebo online portal.
W a d e e CEO ea b e a e?
Game Type relates to the category of game. For example, sports, family, racing, etc.
A e e c ce ed ab e a e a e a ?
Most Gamebox games are rated E for Everyone or T for Teen. Gamebox has never produced a Mature rated game.
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01 | CASE: GAMEBOX
Framework Guidance:
Note: There are many possible alternatives to this framework. These are only provided as possible suggestions.
Financial Non-Financial
Revenues Costs Internal External
Expected # of game copies Game Development Existing game portfolio. Market-wide trends by game
sold Software developer Saturation in any category? type
Price point of game salary Expertise by game type Trend to mobile gaming
Create incremental demand Storyboarding Customers Alt. forms of entertainment
for consoles Equipment, licenses, Preferences (movies, live action, etc.)
Alternative revenue sources and other overhead Willingness to pay Disposable income
Merchandise Testing Game pipeline of major
Add-ons/In-game Intellectual property Fit with mission/long-term competitors
purchases Marketing/Awareness strategy of Gamebox
Partnerships Marginal cost of each game
sold
01 | CASE: GAMEBOX
EXHIBIT 1
Video game market trends
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01 | CASE: GAMEBOX
Question 1
What category of game do you recommend our client pursue?
Supply only when asked:
- Price point of all games will be $50, regardless of category
- Development cost of all games is $50 Million, regardless of category
- Marginal cost of selling a copy of any game is negligible since games are sold digitally
01 | CASE: GAMEBOX
BRAINSTORMING
What are other ways Gamebox could monetize revenue for their games?
Brainstorming Guidance:
Note: This is just one possible set of categories and answers. Many more are possible, and interviewers should assess both the volume and relevance of answers.
01 | CASE: GAMEBOX
EXHIBIT 2
Add-on Purchase Interest
01 | CASE: GAMEBOX
Question 2
Has your recommendation changed after viewing this information?
01 | CASE: GAMEBOX
CONCLUSION
To conclude, the interviewee should provide the following:
Recommendation:
Candidate should give a clear, succinct recommendation about which game category to pursue. Candidate should use
data from the case to support his/her recommendation.
Risks:
Add-on revenue is sensitive to total game sales and (potentially) changed direction of recommendation
(If Shooter) Given GameBo primary demographic, how the game is rated may impact sales
Next Steps:
Quantify opportunity of alternative revenue sources generated in brainstorming session to gain confidence in
recommendation
Develop go-to-market strategy from storyboarding to development to launch
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Case Execution:
Clarifying Questions + Framework
Good Questions
Feedback:
1 2 3 4 5
Structured
MECE
Creativity
Exhibits + Quantitative Ability
Accuracy Feedback:
Speed 1 2 3 4 5
Insights Presented
Errors / Guidance Needed
Brainstorm + Conclusion
Creative & Structured 1 2 3 4 5 Feedback:
Good Business Judgment
Recommendation Strength
Total: _____ / 20
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Seven Flags
Hospitality
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SEVEN FLAGS
Hospitality B E H AV I O R A L
INTERVIEW
Prompt: Our client is a mid-size amusement park chain, with 10 parks around QUESTION:
the U.S. serving over 10 million visitors each year. In their Richmond, VA
park, it operates both a traditional thrill-ride section, as well as an animal
1 . Te l l m e a b o u t
experience. (Show park map.) Currently, the two sections are covered under yourself.
one entry ticket price. However, management is considering offering a
separate ticket for only the animal experience section. They have come to us
to determine if this is a good idea. 2 . Te l l m e a b o u t
a time you
Clarifying Information: Note: Provide this only if corresponding questions are asked. helped a team
overcome a
1. Financial goal: Management wants a payback period less than 10 years. (If the candidate asks, payback period problem.
= investment / on-going profit.)
2. Current price: Tickets are currently $20 and provide visitors full access to the park
4. Business model: The park is a typical amusement park (think Six Flags or Busch Gardens). Visitors buy a ticket
for entrance (assume same price for adults and children), and all rides / amusements are accessible under the one
ticket price. The park also sells merchandise and food / drinks separately.
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EXHIBIT 1
Seven Flags park map
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Framework Guidance:
Note: There are many possible alternatives to this framework. These are only provided as possible suggestions.
Revenue: ticket prices, food & drink Other attractions in the area Changes in disposable income
sales, merchandise, visitor volume, Zoos, petting zoos Weather conditions
cannibali a ion of ide + animal icke Museums Consumer entertainment preferences
sales Movie theaters
Existing costs: maintenance, animal State fairs
care, labor/operations, COGS All forms of family friendly recreational
(merchandise, food) activities
New costs: Build out of new entrance,
wall between sections of the park, and
new parking
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EXHIBIT 1
Price elasticity of animal only admissions
1,400 1,300
1,200 1,100
# of park visitors (daily) 1,000
800 700
600 500
400
200
-
$10.00 $12.00 $14.00 $16.00
Ticket price
1. Cannibalization rate is 50%
2. Establishment is open 350 days per year
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Question 1 From Exhibit 2, candidate should want to discover which price would maximize revenue. See below for solution.
Revenue is maximized at a price point of $16 per ticket for the animal only admission. This equates to ~$1MM in incremental ticket sales or
a 5% increase
From the prompt and clarifying questions, we know that Seven Flags sees about a million visitors a year at $20 per visitor in ticket sales.
Thus, current ticket revenue equals $20MM.
Great candidates will mention that incremental revenue is sensitive to the cannibalization rate assumption
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BRAINSTORMING
Aside from ticket sales, what are some other considerations that will factor into the decision?
Brainstorming Guidance:
Note: This is just one possible set of categories and answers. Many more are possible, and interviewers should assess both the volume and relevance of answers.
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CONCLUSION
To conclude, the interviewee should provide the following:
Recommendation: There is no correct answer, but a likely response could be:
Move forward with creating an animal only admission ticket
Incremental revenue / profit is maximized at a price point of $16.00 per ticket, leading to a 5% increase in ticket revenues
and profits
Given the $2M investment, payback period is ~9.5 years j belo managemen eq i emen of 10 ea
Risks:
Incremental revenue / profit very sensitive to cannibalization. If actual cannibalization is higher, incremental profits will
suffer and payback period will exceed 10 years
Potential opportunity cost to invest in higher ROI projects
Next Steps:
Payback period will decrease (improve) if animal park can sell additional merchandise, food, and beverages to new
visitors. Size this opportunity and understand impact
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Case Execution:
Clarifying Questions + Framework
Good Questions
Feedback:
1 2 3 4 5
Structured
MECE
Creativity
Exhibits + Quantitative Ability
Accuracy Feedback:
Speed 1 2 3 4 5
Insights Presented
Errors / Guidance Needed
Brainstorm + Conclusion
Creative & Structured 1 2 3 4 5 Feedback:
Good Business Judgment
Recommendation Strength
Total: _____ / 20
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Smiles4Life
Healthcare
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03 | CASE: SMILES4LIFE
CASE STRUCTURE
Digital marketing
New stores (organic) New market (acquisition)
campaign
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03 | CASE: SMILES4LIFE
SMILES4LIFE
B E H AV I O R A L
Healthcare INTERVIEW
Prompt: Smiles4Life is a regional dental company with 40 locations throughout Texas. QUESTION:
The company is a dominate player in both Dallas and Houston, known to have especially
strong ties to the Latin community. Last year, Smiles4Life did $60M in revenue with a 20%
EBITDA margin after including corporate expenses. At this point, the owner/founder was 1. How does
ready to retire and decided to sell the company to Red Rock Capital, a PE fund based out consulting fit
of LA. Red Rock is excited about the new investment and is now focused on value with your
creation. Red Rock engaged us to help diligence Smiles4Life and, being so pleased with background?
their work, decided to engage us again to develop a growth strategy for its newest
portfolio company. How would you advise?
2. When have
Clarifying Information: Note: Provide this only if corresponding questions are asked. you gone above
and beyond what
1. Growth target: Red Rock wants to increase EBITDA by 75% within three years of the investment.
was required of
2. Business model: Smiles4Life generates revenue much like any typical dental office. Doctors treat patients. you?
Patients then pay either in cash or through a benefit provider (commercial PPO insurance, Medicaid, HMO, etc ).
3. Red Rock Capital: The PE fund focuses on investments across manufacturing, healthcare, and restaurants. It
has successfully scaled many multi-site businesses before, especially in the restaurant industry.
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03 | CASE: SMILES4LIFE
Framework Guidance:
There are many possible frameworks to address this case
Candidates should brainstorm a variety of growth initiatives. Ideas could include:
- Existing vs new customers, existing vs new services (2x2 could be used here).
- New products: orthodontics, oral surgeries, implants, whitening, electric toothbrushes, in-house financing
- Generating top-line demand via AIDA marketing funnel (Awareness, interest, desire, action)
- Geographic expansion, either organic or acquisition
- Pricing strategy
- Cost analysis and reduction: procurement, doctor salary, labor wages, centralization (customer service, claims management)
If the candidate wants to explore other ideas, use any of the following suggested responses:
Managemen foc ed on hi a ea ecen l and doe n belie e addi ional oppo ni ie e i igh no (fo e ample, c ing costs or adding new products)
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03 | CASE: SMILES4LIFE
Marketing Initiative Management believes there is an opportunity to revamp the marketing efforts of Smiles4Life. This would include a
comple e o e ha l and mode ni a ion of he compan eb i e, a ell a inc ea ing pend on SEO and o he fo m of a ge ed digital ads.
(Hand out exhibit).
Tell candidate: The variable cost to see one incremental patient is 50% of revenue
Share only when asked: The average spend per dental appointment is $300
What factors should the client consider as it develops and executes this new marketing initiative?
Customer segmentation / analysis know who to target and what types of promos they respond best to
Upfront and on-going cost to update the website
Marketing ROI by channel (SEO, PPC, Webiste, etc.)
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03 | CASE: SMILES4LIFE
MARKETING
Estimated incremental results of multi-pronged digital program
500,000 4.00%
3.50%
400,000
3.00%
2.50%
300,000
2.00%
200,000
1.50%
1.00%
100,000
0.50%
- 0.00%
1/1/2014 7/1/2014 1/1/2015 7/1/2015 1/1/2016 7/1/2016
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03 | CASE: SMILES4LIFE
New stores If the candidate mentions geographic expansion via organic growth, provide the following exhibit. Guide the candidate to
calculate the EBITDA opportunity in year 3.
Note: store EBITDA is higher than company wide EBITDA margin because it does not include corporate expenses
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03 | CASE: SMILES4LIFE
DE NOVOS
Average expected de novo performance and pipeline
1. The e m de no o i a La in e p e ion ed in Engli h o mean f om he beginning , ane . Man e aile efe o ne , o ganic oe a de novos. In ho , de novos are new stores.
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03 | CASE: SMILES4LIFE
New market via acquisition The management team is interested in expanding into San Antonio. The business
development team just identified a potential acquisition The Smile Center, comprised of 6 dental offices. Each store does
about $1MM in sales with a 20% EBITDA margin, representing an estimated $1.2MM EBITDA opportunity. (No need for
additional math.)
What are the opportunities and risks to consider?
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03 | CASE: SMILES4LIFE
CONCLUSION
We e abo o j mp on he phone i h he managing di ec o of he PE f nd. Plea e p o ide a ecommenda ion.
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Case Execution:
Clarifying Questions + Framework
Good Questions
Feedback:
1 2 3 4 5
Structured
MECE
Creativity
Exhibits + Quantitative Ability
Accuracy Feedback:
Speed 1 2 3 4 5
Insights Presented
Errors / Guidance Needed
Brainstorm + Conclusion
Creative & Structured 1 2 3 4 5 Feedback:
Good Business Judgment
Recommendation Strength
Total: _____ / 20
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EXHIBIT 1 C H I N A S C A S H C O S T C U R V E ( I N C L U D E S R O YA L T I E S A N D F R E I G H T )
US$/oz
$1000 $1025 $1050 $1075 $1100 $1110 $1125 $1150 $1200 $1225 $1250
Client A Competitor B
200 200 180 180 180 160 150 150 120 100 80
Exhibit Guidance:
The interviewee should notice and verbally acknowledge the following in Exhibit 1. This is where you insert question and the answers to the question
Expected Insights:
1.Increasing capacity pushes out the supply curve lowering the sales price per ton
2. In commodity market, the price is set at the cost of the last ton demanded in the market. (I.e. ton 1,500 cost $1,200). Adding 100 more tons of supply moves that to
$1,150
3.We need to understand if the increase volume is offset by lower price and investment cost
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BRAINSTORM
Question 2: If you were competitor B, how would your react?
Interviewee should assess that competitor B will lose $50 margin ($1200 - $1150 price drop), and therefore a total of $50 *
200 tons * 15 oz/lb * 2000 lb/ton = $300M per year.
In e ie ee ho ld con ide a fe op ion ha compe i o B ha :
Compe i o B can inc ea e hi p od c ion if he ha e acce o ne mine (p ice ill d op e en f he , b pe hap
volume increase will compensate)
Compe i o B can empo a il ed ce p od c ion o make p ice go p again
Compe i o B can o k o ed ce co
Compe i o B can a e M&A op ion (e.g. Highe co pla e ha a e looking o ell, and can po en iall ha e
ne gie ihB c en ope a ion )
A great answer would point out that competitor B needs to expand by another 150M tons (75% increase in capacity before
the price would drop lower). Therefore, we are not as concerned about their reaction.
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CONCLUSION
You can go either way with the conclusion, but recommend expansion option
Expand
Recommend client expand ~150M incremental profit will payback in 5 years. The larger scale will give us more
scale for supplier power and flexibility to bring on/take off supply advantageously.
Concern and Next Steps (just one example of many options)
Shortage of skilled labor force Partner to build a attraction and retention labor force strategy
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Case Execution:
Clarifying Questions + Framework
Good Questions
Feedback:
1 2 3 4 5
Structured
MECE
Creativity
Exhibits + Quantitative Ability
Accuracy Feedback:
Speed 1 2 3 4 5
Insights Presented
Errors / Guidance Needed
Brainstorm + Conclusion
Creative & Structured 1 2 3 4 5 Feedback:
Good Business Judgment
Recommendation Strength
Total: _____ / 20
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PharmaCo
Healthcare
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05 | CASE: PHARMACO
PHARMACO
Healthcare
B E H AV I O R A L
Prompt: PharmaCo is a pharmaceutical company with $10 billion in annual
INTERVIEW
e en e. I co po a e HQ and p ima R&D cen e a e in S i e land, i h QUESTION:
regional sales offices worldwide. PharmaCo is interested in entering a new,
apidl g o ing egmen of d g called biological . To gain he R&D
capabilities requisite for biologicals, PharmaCo is considering acquiring 1 . Te l l m e a b o u t
BioLead, a biologicals start-up in Austin. BioLead is privately owned and has a time you
an estimated valuation of $1 billion. Our firm has been hired to evaluate the worked with a
BioLead acquisition and to advise on its strategic fit with Pha maCo difficult team
member and how
biologicals strategy. What factors should the team consider when evaluating
you resolved it.
whether PharmaCo should acquire BioLead?
Clarifying Information:
1. What is P a aC core business? GP has a long, successful tradition in researching, developing, and selling
mall molec le d g . Thi cla of d g ep e en he a majo i of d g oda , incl ding a pi in and mo
blood-pressure or cholesterol medications.
2. Is entry-by-acquisition the only approach we should consider? R&D for biologicals is vastly different from
small-molecule R&D. Since its competitors are already several years ahead of PharmaCo in the biologicals market,
PharmaCo wants to jumpstart its biologicals program via acquisition.
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05 | CASE: PHARMACO
Question 1
What factors should the team consider when evaluating whether PharmaCo should acquire BioLead?
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05 | CASE: PHARMACO
BRAINSTORMING
The team wants to explore the value of BioLead current drug pipeline. Based on market research, BioLead only promising drug, SM1, is
estimated to generate $10B in sales if brought to market. That said, what c d be c de ed ee e ad
lifetime?
Brainstorming Guidance:
Note: This is just one possible set of categories and answers. Many more are possible, and interviewers should push candidates to be specific and comprehensive.
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05 | CASE: PHARMACO
Question 3
The team has pulled together the following data (show Exhibit 1). What is the value of BioLead drug, SM1?
Supply the following information only when asked:
- Costs by phase: Phase I $160M, Phase II $125M, Phase III $75M, Filing $5M. Costs are incurred only if the drug reaches a particular
phase.
- Costs of production: Manufacturing 5% of sales, Logistics 5% of sales, Other 10% of sales
- Lifetime revenue: $10B great candidates will recall that this information was previously provided
Question Guidance:
Revenue (discounted by chance of success): $10B x 70% x 40% x 50% x 90% = $1,260MM
Production costs: $10B x (5% + 5% + 10%) = $2B, then discounted by chance of success = $252MM
Phase 1 has a 100% chance of completion = $160MM
Phase 2 achieved 70% of the time (probability a drug completes Phase 1) = $125M x 70% = $87.5M
Phase 3 achieved 70% x 40% of the time = $75M x 70% x 40% = $21M
Filing achieved 70% x 40% x 50% of the time = $5M x 70% x 40% x 50% = $0.7M
Revenue ($1,260MM) Production costs ($252MM) R&D costs ($269.2MM) = $738.8MM SM1 drug valuation
This drug valuation essentially represents known future cash flows of the business. Great candidates will compare this figure against the
$1B BioLead company valuation mentioned in the prompt and hypothesis why the figures are different.
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05 | CASE: PHARMACO
EXHIBIT 1
Expected probability of success, by stage of research and development, %
70 40 50 90 Successful
Candidate Phase I Phase II Phase III
Filing marketing
drug trial trial trial
and sales
30 60 50 10
Fail Fail Fail Fail
N e: Fi i g i he ce f b i i ga f he c i ica a d afe e ide ce f Pha e I, II, a d III ia , a d a ing for regulatory approval
to actually sell the drug.
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05 | CASE: PHARMACO
Question 3
What are your hypotheses on the major risks of integrating the R&D functions of BioLead and PharmaCo?
The best candidates will recognize the human element of organizational change
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Case Execution:
Clarifying Questions + Framework
Good Questions
Feedback:
1 2 3 4 5
Structured
MECE
Creativity
Exhibits + Quantitative Ability
Accuracy Feedback:
Speed 1 2 3 4 5
Insights Presented
Errors / Guidance Needed
Brainstorm + Conclusion
Creative & Structured 1 2 3 4 5 Feedback:
Good Business Judgment
Recommendation Strength
Total: _____ / 20
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Framework Guidance:
Note: There are many possible alternatives to this framework. These are only provided as possible suggestions.
Note: Inform the candidate that the client is mainly interested in estimating revenue from issues licenses. Hand interviewee Exhibits 1 & 2.
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EXHIBIT 1
Shisha licensing structures
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EXHIBIT 2
Riyadh (capital of Saudi Arabia), restaurant market segmentation
Number of
5,000 2,000 1,000 6,000
Businesses
*The capital city of Riyadh represents about 20% of the domestic restaurant market
*The average lifespan of a restaurant is three years
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Question 1
Which licensing structure should Saudi Arabia adopt? What is the estimated three-year revenue impact?
Supply only when asked: Because of unusual economic growth, 1,000 new restaurants will be added to the Riyadh region
each year for the next two years.
Supply only when asked: Related products have experienced an adoption rate of 5%, 10%, and 15% in years 1, 2, 3
respectively.
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BRAINSTORMING
Are there any other considerations the Saudi government should keep in mind before legalizing the public consumption of shisha?
Brainstorming Guidance:
Thi i a ha el e ec ion. Belo a e ome ba ic b ideall , o e looking fo he in e ie o be a c ea i e a po ible. As with most
questions of this type, a bad answer will stop at one or two. A good answer will have a creative list. A great answer will have a structure that
makes the answer MECE. A great answer should also prioritize the findings indicating which ones he/she thinks are the most important.
CONCLUSION
The minister of commerce is dialing in on Skype and expects a summary. Please share your findings.
Recommendation:
Candidate should succinctly summarize findings, including the license structure that optimizes revenue and year 3
revenue opportunity.
Great candidates will note that calculated figures are conservative as they do not include revenue from sales tax or import
tariffs.
Risks:
License revenue depends heavily on adoption rate
Healthcare costs related to increased tobacco use
Next Steps:
Ma ke anal i of e a an illingne o ell hi ha (i.e. adop ion a e)
Explore the financial and social costs related to the program
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Case Execution:
Clarifying Questions + Framework
Good Questions
Feedback:
1 2 3 4 5
Structured
MECE
Creativity
Exhibits + Quantitative Ability
Accuracy Feedback:
Speed 1 2 3 4 5
Insights Presented
Errors / Guidance Needed
Brainstorm + Conclusion
Creative & Structured 1 2 3 4 5 Feedback:
Good Business Judgment
Recommendation Strength
Total: _____ / 20
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MBS Co.
Financial Institutions
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MBS CO.
Financial Institutions
Prompt:
B E H AV I O R A L
Your client is MBS Co., a government sponsored enterprise (GSE), that purchases mortgages from
banks, packages them into mortgage-backed securities (MBS), and sells them in the secondary INTERVIEW
ma ke o in e o . MBS Co. e n on capi al (ROC) ha declined ince la ea , and he QUESTION:
management team is looking for your help in understanding why this has happened and how to
improve ROC going forward.
Clarifying Information: Note: Provide this only if corresponding questions are asked. 1 . Te l l m e a b o u t
a time you
MBS Co. buys individual mortgages from banks and packages several thousand of them into a given security.
Shares in that security are sold to investors. failed.
When a homeowner makes a monthly mortgages payment, the payment passes through the bank first, then
through MBS Co., then to investors (primarily institutional investors).
MBS Co. keeps a small fee on each payment that passes through. The fee amount is based on a percentage of
mortgage volume (i.e. how much money was loaned to homeowners).
MBS Co. has one other GSE competitor that buys mortgages and creates mortgage-backed securities. The
securities from both companies are fungible to investors.
Banks can also choose to hold mortgages rather than sell to a GSE and keep the full monthly mortgage
payments from homeowners.
There is no target ROC. Any improvement in ROC would be considered a success.
Return on Capital (ROC) = profits / capital
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Framework Guidance:
Framework should identify profit and capital as components of ROC (traditional profit tree Example framework
w/o capital is not sufficient)
Mortgage riskiness (borrower credit
MBS Co. fee a a pe cen of mo gage ol me ha been con i en ince la worthiness)
year, and the fee percent is consistent for all mortgages (regardless of riskiness) Profit Pricing pressure from banks
Fee pressure from investors
Internal costs (e.g. SG&A) are negligible Internal costs
ROC
Regulations have not changed
Regulatory requirements
A good framework will call out competition (other buyers of mortgages) and/or vertical Capital
Excess cash build-up
integration in the value chain Build-up of unsecuritizable mortgages (i.e.
bo gh f om bank b can n in o MBS)
No new competitors have entered the market; the government only allows MBS Co.
and its one competitor to create MBS Interest rates, yield curve
Market Oversupply of housing
Banks have begun holding more mortgages (if candidate asks about this, indicate it Consumer housing preferences
will be discussed later in the case)
New entrant
A good interviewee will note market conditions as a potential reason for the decrease in Competitor pricing/fees
Competition
ROC but will recognize this is not a lever MBS Co. can use to increase ROC going forward Customer/supplier vertical integration
(e.g. banks hold mortgages)
All market conditions have remained consistent since last year
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EXHIBIT 1
2017 mortgage originations
100%
Capital requirement cohort1
<0.5%
80%
0.5-1.0%
Portfolio composition
1.0-2.0%
60% >2.0%
40%
20%
0%
0% 20% 40% 60% 80% 100%
Held on bank portfolios Competitor A MBS Co.
% of mortgage volume
1Capital required to be held per dollar of mortgage securitization volume. Based on FICO score and loan-to-value ratio of borrower/mortgage.
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EXHIBIT 2
2018 mortgage originations
100%
Capital requirement cohort1
<0.5%
80%
0.5-1.0%
Portfolio composition
1.0-2.0%
60% >2.0%
40%
20%
0%
0% 20% 40% 60% 80% 100%
Held on bank portfolios Competitor A MBS Co.
% of mortgage origination volume
1Capital required to be held per dollar of mortgage securitization volume. Based on FICO score and loan-to-value ratio of borrower/mortgage.
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Exhibit 3
The client has identified a way for 10% of the capital backing high capital requirement mortgages (>2% cohort) to be redeployed in low capital requirement
loans (<0.5% cohort). How much will this shift change overall ROC?
Provide the interviewee with Exhibit 3
Exhibit Guidance:
Interviewer notes
- The interviewee must shift the capital between cohorts and calculate the new wtd avg ROC % for the portfolio
- Securitization volume is not needed to perform the calculation; its inclusion in the exhibit is intended as a red herring
Points of clarification (provide if interviewee asks)
- Capi al and ec i i a ion ol me a e ela ed ia he capi al eq i emen (e.g. in he <0.5% coho , $500B ec i i a ion olume x 0.4% wtd avg capital
requirement = $2B capital)
- Cohort ROC (i.e. ROC within a cohort) does not change as a result of the capital shift; cohort ROC is based on the riskiness of the mortgages that fall in the
capital requirement domains
Takeaway / insights
- A good interviewee will recognize the shift in capital will drive a ROC increase, before even performing any calculations
- Af e comple ing calc la ion, in e ie ee ho ld decla e capi al hif e l in inc ea ed ROC, h a i f ing clien goal
- Second order insight: Shifting capital to lower capital requirement loans will require increase in total portfolio size (and thus, market share)
To advance: A good interviewee will begin brainstorming ways for MBS Co. to make this shift in its portfolio and/or risks associa ed i h he hif . If he don
proactively do this, provide them with the next question.
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EXHIBIT 3
2019F securitization portfolio
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Capital Change in
requirement Change in Cohort dollar returns $105m change in dollar returns / $20B in capital = ~0.5% change in ROC
cohort capital ($B) ROC ($M)
New ROC = 12.5%
<0.5% +0.5 x 25.0% +125
Alternate approach: (25.0% - 4.0%) x $500M = $105M
>2.0% -0.5 x 4.0% -20
Net change 0.0 105
Method 2
Interviewee calculates change in portfolio ROC % by recreating a full wtd avg calculation for the new portfolio
Capital
requirement Capital Cohort Dollar returns
cohort ($B) ROC ($M)
<0.5% 2.5 x 25.0% 625 $2.5B dollar returns / $20B in capital = 12.5% ROC (new)
0.5-1.0% 8.0 x 15.0% 1,200
1.0-2.0% 5.0 x 10.0% 500
>2.0% 4.5 x 4.0% 180
Total 24.0 ~2,500
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Question 1
What methods can MBS Co. use to shift its portfolio to higher ROC loans?
Question Guidance:
Identifying options based on the various stakeholders in the mortgage value chain is one effective way of brainstorming this question
Interviewees may also choose to use an internal/external framework, in which all the non-MBS Co. stakeholders would align with the external bucket
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CONCLUSION
To conclude, the interviewee should provide the following:
Recommendation:
MBS Co. e n on capi al ha declined beca e bank a e choo ing o hold high-ROC mortgages on their portfolio
(gaining market share) and passing low-ROC loans to MBS Co. (shift in portfolio). MBS Co. has an opportunity to
inc ea e i e n on capi al b 0.5% o 12.5% b hif ing capi al in i po folio o highe q ali loan b [in e ie ee
should choose an idea mentioned in brainstorming]
Risks:
[Risks should be tailored to the ideas chosen]
Po en ial i k incl de: p e akeholde affec ed b idea cho en, MBS Co. lack of capabili ie o e ec e idea
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Case Execution:
Clarifying Questions + Framework
Good Questions
Feedback:
1 2 3 4 5
Structured
MECE
Creativity
Exhibits + Quantitative Ability
Accuracy Feedback:
Speed 1 2 3 4 5
Insights Presented
Errors / Guidance Needed
Brainstorm + Conclusion
Creative & Structured 1 2 3 4 5 Feedback:
Good Business Judgment
Recommendation Strength
Total: _____ / 20
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Emerald City
Public Sector
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EMERALD CITY
Public Sector
Prompt:
Your client is the mayor of Emerald City - a large, metropolitan US city (i.e. B E H AV I O R A L
Ne Yo k o Lo Angele ). She ha no iced ha Eme ald Ci FDI le el INTERVIEW
foreign direct investment have been decreasing over the past year. The QUESTION:
mayor wants to turn this trend around. What are the main factors she should
consider as causes of the decline? 1 . Te l l m e a b o u t
Clarifying Information: Note: Provide this only if corresponding questions are asked. a conflict you
1. What is FDI? Foreign direct investment is an investment made by a firm or individual in a foreign country into experienced that
businesses located in the country of interest. Generally, FDI takes place when an investor establishes foreign
business operations or acquires foreign business assets (as opposed to equity purchases).
a
resolved.
2. Why does the mayor want to increase FDI? She is interested in the foreign income opportunities, as well as
he benefi o Eme ald Ci pop la ion.
3. What foreign entities currently invest in Emerald City? Foreign investors into Emerald City include firms
from a broad range of markets, from mature economies such as the EU and China, to emerging economies such as
Brazil and India.
4. What is the goal/target? A $60 billion increase in FDI over the next 2 years.
Framework Guidance:
Note: There are many possible alternatives to this framework. These are only provided as possible suggestions
A good framework will consider this question from multiple angles, including both financial and non-financial elements. An excellent
framework will incorporate potential solutions or risks as a secondary focus, but should be a brief mention since the prompt
specifically asks for causes. Certain characteristics could be argued for one bucket or another (i.e. political stability could potentially
be in Emerald City if referring to local economy and not U.S. or other countries.
Emerald City Characteristics (Internal) Macroeconomic (External 1) Geopolitical/Social (External 2)
Growth opportunities Mix/growth of foreign investors Free Trade/Tariffs
Industry specific factors Strength of dollar Political Stability/Corruption
Population growth Diversification potential Geographical constraints
Tax Rate
Causes Transport/Infrastructure
Labor
Skill of labor force
Wage Rates
Unemployment
Domestic political shift Effect on exchange rates Environmental concerns
Risks Integration of production/supplier sites Cultural tensions
Cannibalization of domestic investment
Mention: The mayor has some numbers on a subset of current FDI levels and trends. Hand the interviewee Exhibit 1.
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EXHIBIT 1
Emerald City FDI sources
EU 19 0.5% 2%
China 12 1% 4%
Brazil 2 5% 7%
India 2.6 3% 5%
* Expressed as %GDP
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Question 1
The mayor wants to know what you think of her goal to increase FDI.
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BRAINSTORMING (QUESTION 2)
The mayor is interested in your overall thoughts on what increased FDI will do for her and Emerald City, as well as the risks.
Brainstorming Guidance:
Note: This is just one possible set of categories and answers. Many more are possible, and interviewers should assess both the volume and relevance of answers.
Benefits: Risks:
Financial Regulatory
Non-financial Transportation
capabilities/logistics
Stability
Integration of cultures
Re-election
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Question 3
Now I am the mayor. Tell me why FDI benefits my citizens.
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Case Execution:
Clarifying Questions + Framework
Good Questions
Feedback:
1 2 3 4 5
Structured
MECE
Creativity
Exhibits + Quantitative Ability
Accuracy Feedback:
Speed 1 2 3 4 5
Insights Presented
Errors / Guidance Needed
Brainstorm + Conclusion
Creative & Structured 1 2 3 4 5 Feedback:
Good Business Judgment
Recommendation Strength
Total: _____ / 20
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0 9 | C A S E : O M E G A N AV A L S Y S T E M S
They have three radar systems in their product lineup, Products 1, 2 and 3.
1 and 3 are substitutes for one another. 1 . Te l l m e a b o u t
a time you
The company has experienced declining profits in recent years and has utilized data to
brought us in to advise how to turnaround their financials. influence
someone.
Clarifying Information:
Only sell to US Navy with no intention of expanding to other branches.
Omega makes money on the sale of the radar system, no ongoing service contracts. One time sale.
No new products are expected to be developed or launched.
No target improvement goal, just better than what it currently is.
No historic profitability figures.
All options on the table regarding the 3 product lines.
Expect 100% conversion of customers from products 1 to 3 or 3 to 1 if either is shut down.
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0 9 | C A S E : O M E G A N AV A L S Y S T E M S
RECOMMENDED FRAMEWORK
Candidate should recognize this is a profitability problem and should drive the case here first. Strong candidates will mention the margin of each product line as a
potential driver of the profit problem(mix issue).
Candidate should also infer about potential changes at the company in recent years and if these changes have impacted capacity, supplier relations, pricing, etc.
A ho gh f l f ame o k, ho gh nnece a fo hi ca e cce , ill incl de e e nal p e e f om compe i o and po ential changes in customer buying
behaviors(peace time vs. war time, repeat customer purchases, fixed contract pricing, etc.)
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0 9 | C A S E : O M E G A N AV A L S Y S T E M S
Service Research and Development Software* Semi Conductor Parts* Labor Fixed Costs
* Externally Sourced
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0 9 | C A S E : O M E G A N AV A L S Y S T E M S
Question 3: Conceptually, what would happen if you doubled the sales of product 1?
- Fixed costs would be shared across more units, cost per unit drops to 99% of revenue. All else equal, the product line
becomes profitable.
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0 9 | C A S E : O M E G A N AV A L S Y S T E M S
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0 9 | C A S E : O M E G A N AV A L S Y S T E M S
EXHIBIT 2
Total Production Costs
120%
100%
80%
60%
40%
20%
0%
0 20 40 60 80 100 120 140 160 180
Cumulative Units Produced
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0 9 | C A S E : O M E G A N AV A L S Y S T E M S
0 9 | C A S E : O M E G A N AV A L S Y S T E M S
C A L C U L AT E F I N A N C I A L I M PA C T ( I N T E RV I E W E R O N LY )
Assume we can convert 100% of sales of Product 3 to Product 1 this year. Calculate the profitability improvement by
product, in total, and net margin improvement as a percentage.
Old Profitability
Profitability per unit(millions) Product 1 Product 2 Product 3 Total
Revenue 5 7 5
Total Cost 5.55 5.53 5.45
Profit per unit -0.55 1.47 -0.45
Total Profit -2.75 14.7 -2.25 9.7
0 9 | C A S E : O M E G A N AV A L S Y S T E M S
RECOMMENDATION
The candida e ecommenda ion ho ld en ail h ing do n P od c 3.
Rationale should include improved EOS opportunities in Product 1, lack of profitability in Product 3, and
opportunity for 100% conversion of customers due to the substitution of 1 for 3.
Recommendation should quantify the improvement in $(10.6million) and %(109) terms.
Risks should include monetary cost of shut down and customer pushback
Next steps should include a cost analysis of the shutdown and/or communications plan internally and
externally about the proposed plan
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Case Execution:
Clarifying Questions + Framework
Good Questions
Feedback:
1 2 3 4 5
Structured
MECE
Creativity
Exhibits + Quantitative Ability
Accuracy Feedback:
Speed 1 2 3 4 5
Insights Presented
Errors / Guidance Needed
Brainstorm + Conclusion
Creative & Structured 1 2 3 4 5 Feedback:
Good Business Judgment
Recommendation Strength
Total: _____ / 20
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4. Understanding the product: Very large machine that can process 100 boxes per minute taking the box from raw
corrugated board to final box you would see when you receive shipment from Amazon.
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Framework Guidance:
Note: There are many possible alternatives to this framework. These are only provided as possible suggestions.
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EXHIBIT 1
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EXHIBIT 2
EBITDA %
$ of Machine Sales
EXHIBIT INSIGHTS
Exhibit 1
Machine revenue is largest revenues stream, but lowest EBITDA due to low EBITDA %
Candidate may be tempted to say focus on growing revenue of higher EBITDA% revenue streams, but key insight to this is understanding the
business model that the machines build the customer base to drive revenues for the downstream revenue streams.
Drive forward should be understanding if your PE firm can drive growth in either EBITDA% or Revenue based on our PE capabilities, portfolio
synergies, or purchasing add-on acquisitions
PE capabilities Give them Exhibit 2
Portfolio Synergies Tell them we have another company that does the folding, packing, and gluing of boxes. We believe machine sales
market share will increase to 20% of the overall market by Y5 exit due to this portfolio synergy
Add-on acquisitions no opportunities there
Exhibit 2
Two key pieces of information on this chart.
1. Industry EBITDA % averages for Parts and Field Service. Candidate should drive toward our ability to grow toward industry average and
input that we are currently not there from Exhibit 1
2. Company can grow downstream sales as a % of Machine Sales Revenue. It is based on last 3 years of sales. Can assume we can get to
that % by Y5.
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MATH SOLUTIONS
Candidate should recognize they need to get to Y5 EBITDA
amount and then use a multiple.
The multiple can be determined by imputing multiple from year 1
(10M EBITDA with $100M asking price). Should clarify with
interviewer if okay to assume multiple does not change
Candidate should ask about market growth and market share
assumptions to get to year 5. Growth: 5%/year. Share: 10%->20%
Candidate should realize they only need to calculate machine
revenue for intermediate years since only Y5 EBITDA matters and
all other numbers are function of machine revenue.
Easiest way to get to Y5 Revenue is by dividing Y1 machine
revenue from market share to get Y1 market share.
Then growth market share by 5% per year to get to Y5 market
share and then take 20% of that number for Y5 machine revenue.
Service revenue = 20% of machine sales (per industry average)
Parts revenue = 30% of machine sales (per industry average)
Candidate should recognize that $380M meets target of $380M
and then drive to thinking through risks of doing the investment.
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BRAINSTORMING
What are the potential risks GS Capital may face with purchasing the company?
Brainstorming Guidance:
Note: This is just one possible set of categories and answers. Many more are possible, and interviewers should assess both the volume and relevance of answers.
Firm Market
Leade hip challenge (inc mben CEO di ag eemen and/o can find go Major purchasers (Amazon switch suppliers) and they are not one of our
new leader customers
Big, complex machines large warranty/liability exposure Competitor emerges with superior technology
Cannot realize industry average EBITDAs International competitor emerges with lower labor costs
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CONCLUSION
Answer first I recommend GS Capital purchases Corrugating Co. for $100M as we estimate they
can sell it in 5 years for $380M, equating to a 3.8x cash-on-cash return. This falls on the high side of
the funds target of a 3-4x return on cash.
Risks .I am conce ned abo he a an e po e/e pen e fo he e machine
Next steps o o ld like o pa ne ih o o c ea e p edic i e algo i hm fo a an e po e
by machine.
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Case Execution:
Clarifying Questions + Framework
Good Questions
Feedback:
1 2 3 4 5
Structured
MECE
Creativity
Exhibits + Quantitative Ability
Accuracy Feedback:
Speed 1 2 3 4 5
Insights Presented
Errors / Guidance Needed
Brainstorm + Conclusion
Creative & Structured 1 2 3 4 5 Feedback:
Good Business Judgment
Recommendation Strength
Total: _____ / 20
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To Automate or Not
Logistics
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11 | C A S E : T O A U T O M AT E O R N O T
B E H AV I O R A L
TO AUTOMATE OR NOT INTERVIEW
QUESTION:
Operations
Prompt: 1 . Te l l m e a b o u t
After returning from a trade show, the CEO of a large grocery distribution a time where you
center calls you. He enthusiastically describes a new technology which could made a mistake.
be ed o a oma e pa of hi compan p oce . He a k he he o What lessons
think this would be a good idea for his business. Knowing that this CEO is a did you learn?
tech-enthusiast who loves innovation for the novelty of it, you ponder the
implications. How would you tackle this problem?
2. What are
Clarifying Information: three words that
The company does not have a specific goal in mind with this decision. This CEO trusts us and your learning
ill do ha e e e ad i e. Thi i o e he candida e b ine j dgmen . team would use
Shipments are made to roughly 50 grocery stores in the immediate area, and the company does to describe you?
1M shipments per year Why?
Costs to automate (1) one-time outlay of $4M, plus (2) recurring OH, training, and additional
maintenance costs of $1.0M (make the candidate request BOTH pieces of info)
The candidate should visualize the distribution process (i.e. receiving, holding & picking,
shipping) to think through this question
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11 | C A S E : T O A U T O M AT E O R N O T
Framework Guidance:
Note: There are many possible alternatives to this framework. These are only provided as possible suggestions.
11 | C A S E : T O A U T O M AT E O R N O T
Framework Guidance:
Note: There are many possible alternatives to this framework. These are only provided as possible suggestions.
Guidance:
If he candida e ha n al ead i ali ed he p oce flo fo a di ib ion cen e , p e hem o do o.
Af e he e concep ali ed he compan b ine ell hem ha he 3 pha e of he compan
distribution process are 1) Receiving, 2) Holding & Picking, 3)
Shipping Brainstorm:
Move them into brainstorming exercise around the potential costs associated each phase:
Potential examples: Labor (time), equipment (forklifts, etc.), insurance, storage (i.e. cold and dry)
After the interviewer is satisfied with the depth and breadth of the brainstorming, provide Exhibit 1
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11 | C A S E : T O A U T O M AT E O R N O T
EXHIBIT 1
Receiving
2,000 hrs.
Shipping
3,000 hrs.
11 | C A S E : T O A U T O M AT E O R N O T
Exhibit Guidance:
The interviewee should notice and verbally acknowledge the following in Exhibit 1. This is where you insert question and the answers to the question
After confirming their understanding of the process flow, candidates should focus in on the total time required for the
existing process
Candidates should attempt to quantify the hours in terms of dollars of cost for each area of the process
Info to provide upon request:
Each employee works 40 hours per week
Employee pay per hour is as follows: Receiving - $12/hr, Holding & Picking - $17/hr, and Shipping - $14/hr
Once they obtain the above info, ask the candidate the calculate the total number of employees required in each
function and the annual cost of labor (NOTE Force them to use 52 weeks instead of 50 weeks)
11 | C A S E : T O A U T O M AT E O R N O T
EXHIBIT 2
Receiving
2,000 hrs.
Shipping
6,000 hrs.
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11 | C A S E : T O A U T O M AT E O R N O T
Math Guidance:
The interviewee should notice and verbally acknowledge the following in Exhibit 2. This is where you insert question and the answers to the question
Once they obtain the above info, ask the candidate to calculate the change in the # of employees required in each
function and the change in the annual cost of labor
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11 | C A S E : T O A U T O M AT E O R N O T
Math Guidance:
Strong candidates should revert to the prompt and answer the initial question posed. This requires the candidate to
compare the annual cost savings to the costs of automating.
Question 3:
Ask the candidate to calculate a break-even in years for this investment:
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11 | C A S E : T O A U T O M AT E O R N O T
CONCLUSION
Recommendation:
The CEO i abo o call o o a k fo o ecommenda ion. Wha o ld o a ?
A strong recommendation will include:
Bottom Line Automate or Do not automate
2-3 Supporting Reasons
Risks pertaining to the bottom line
Next steps
Recommendations should be rooted in the prompt and should include numbers/data
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Case Execution:
Clarifying Questions + Framework
Good Questions
Feedback:
1 2 3 4 5
Structured
MECE
Creativity
Exhibits + Quantitative Ability
Accuracy Feedback:
Speed 1 2 3 4 5
Insights Presented
Errors / Guidance Needed
Brainstorm + Conclusion
Creative & Structured 1 2 3 4 5 Feedback:
Good Business Judgment
Recommendation Strength
Total: _____ / 20
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Rubber Bumper
Manufacturing
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RUBBER BUMPER
Manufacturing
B E H AV I O R A L
Rubber Bumper Co is a small family owned producer of rubber products. It INTERVIEW
prides itself on producing a limited range of products but producing the QUESTION:
highest quality on the market. In general, new products are introduced after
much deliberation and careful market study. The company has recently
appointed a new President who noticed decreasing profits over the last 1 . Te l l m e a b o u t
couple of years. a time you
(See the next page for Framework directions) worked through
an ambiguous
Clarifying Information: problem.
Note: Provide this only if corresponding questions are asked.
What type of products do they sell? The company only sells two products; rubber bands and 2 . Te l l m e a b o u t
condoms
a time you had
Is the company seeing similar declines in topline sales? Topline sales have remained relatively
stable over the last 3 years to convince
W a R bbe B e a e ? Rubber Bumper is the market leader in both of their someone of your
product industries idea.
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Framework Guidance:
Note: There are many possible alternatives to this framework. These are only provided as possible suggestions.
Rubber Bumper Co has hired our firm to fix the decline in profits. What are all of the areas that need to be
examined in order to identify any major issues that should be a priority?
Expected Analysis: There are a number of possible frameworks for this question. A good answer will cover
all a ea o d e pec : industry trends, margins, product mix, competitors, etc within reason. Generic
frameworks are inappropriate.
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EXHIBIT 1
Rubber bands sold each year (millions of pounds of rubber)
2011 2012 2013 2014 2015 2016 2017
Rubber Bumper 4 3 3 2.5 2.5 2.5 2
Max Rubber 17 19 21 21 22 23 24
Others (8) 9 9 8 7.5 6.5 4.5 5
Total 30 31 32 31 31 30 31
Exhibit Guidance:
The interviewee should notice and verbally acknowledge the following in Exhibit 1. This is where you insert question and the answers to the question
Question 1: The team decided to look at the product mix and their industry wide positions. The company only has two
products: rubber bands and condoms. The analysts on our team compiled these two tables. (Display Ex. 1). What does this
tell you?
Commentary:
The candidate should ultimately start to see that the rubber band industry is becoming less attractive and the condom
industry is showing growth and the major market players are not keeping up with the growth. A great response will
a oma icall an o ee h R bbe B mpe condom g o h ha ape ed off hile he ind keep e panding. If he
do not get to that issue, prod them until they do.
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Question 2: Rubber Bumper Co has two factories, each producing one of their two products. They essentially do not share
an fi ed co and fo he mo pa a e n a epa a e P&L . The eam o ld like o o p oge he a q ick mma
and compare the financial profitability of each of the two factories for the most recent year.
Rubber Band Factory
They make boxes of 500 rubber bands that they sell to retailers for $20 a box
1 pound of rubber makes approximately 125 rubber bands
They should already have the amount of rubber they used from the exhibit
The rubber band factory has an inclusive $4MM in annual overhead
[ONLY PROVIDE WHEN ASKED] It costs $1 to turn a pound of rubber into a pound of rubber bands (assume no
waste)
Condom Factory
They sell 4 packs of condoms to retailers for $3 a pack
They factory is smaller than the rubber band factory and only costs $2 MM in annual overhead, inclusive of everything
[ONLY PROVIDE WHEN ASKED] Each condom costs $0.10 to make
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Question 3: It turns out that the two overhead figures are significantly different because the capacity of the second factory
is much smaller, about half as much. The President has asked us to evaluate whether we should switch production of the
first plant to make more condoms since we have reached capacity at the smaller plant (assume a factory can only make 1
thing).
Supplementary Information
Give out the following information ONLY WHEN REQUESTED.
It will cost $2MM dollars to refurbish the new plant and take 1 year to complete during which time the factory will be off
line. (If asked, assume there are no tax benefits from depreciating the CapEx and no cost of capital)
Overhead would remain the same
D ing hi ime, e on be able o make an bbe band
The bigger plant can produce twice the volume of condoms as the smaller plant.
R bbe B mpe Co pa back pe iod fo ch p ojec i 4 ea .
Assume that Rubber Bumpers rubber band demand has stabilized at 2MM lbs per year.
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BRAINSTORM
What are some of the risks involved with this project?
Brainstorming Guidance
Thi i a ha el e ec ion. Belo a e ome ba ic b ideall o e looking fo he in e ie ee o be a c ea i e a
possible. As with most questions of this type, a bad answer will stop at one or two. A good answer will have a creative list. A
great answer will have a structure that makes the answer MECE. A great answer should also prioritize the findings indicating
which ones he thinks are the most important.
CONCLUSION
The President is walking in the board room and expects a summary. Please summarize your findings.
Expected Analysis
The mma ho ld a i h a ecommenda ion. Yo ho ld con e he plan and hen back ack in o he
reasoning: industry trends and financial justification. Finally it should mention which of the risks are the most
problematic and how he would mitigate it. The interviewer should feel free to challenge any part of the
conclusion and expect a well worded response.
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Case Execution:
Clarifying Questions + Framework
Good Questions
Feedback:
1 2 3 4 5
Structured
MECE
Creativity
Exhibits + Quantitative Ability
Accuracy Feedback:
Speed 1 2 3 4 5
Insights Presented
Errors / Guidance Needed
Brainstorm + Conclusion
Creative & Structured 1 2 3 4 5 Feedback:
Good Business Judgment
Recommendation Strength
Total: _____ / 20
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