McKinsey Problem Solving Test Practice Test #1 igotanoffer.com
McKinsey PST #1
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How to make the most of this practice test We have designed our tests to resemble the official McKinsey PST as closely as possible. The layout of this test follows exactly the one offered by McKinsey. Here are a few tips to use this test as efficiently as possible: 1.
Print out the test in A4 format, double-sided. Remember, when you are sitting in front of the actual McKinsey PST, you will not be allowed to use scrap paper or a calculator. So you should get used to writing down your calculations in the margins of the question pages. If you only use the pdf document on a screen, you will not experience the real test conditions.
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Do the whole test under real time conditions: you have 60 minutes to complete it. At the end of the 60 minutes, put your pen down, even if no one is there to ask you to. The reason this is important is that you need to track your progress across different sample tests. If you manage to score above 70% in more than 60 minutes, this gives you no indication of how well you will do on the actual test, and might give you a false sense of confidence.
3.
Check your answer sheet against the answer key. Whether you had time to finish all the questions or not, check whether the ones you did answer were correct. Then make a note of your score. Your objective is to improve your score compared to the last sample test you tried. In fact, it is likely that your score in the first test you solve will be well below the passing score of 70%. This is completely normal, as you are still learning about the format of the test, and how to use your answering method within the time allocated. If you stick to the method, and review your answers carefully, you should see a quick improvement in your score.
4.
Review the solutions in the answer key carefully, and compare them with your notes, to see why you didn’t approach the question correctly in the first place. A careful review requires that you go through the steps given in the solution, pencil in hand, and re-do all the steps that aren’t obvious to you. This will take some time, but will prove invaluable to your progress.
5.
Print a clean version and do the test again. Once you are comfortable with all the answers, you can move on to the next sample test. After going through all the available practice tests, you should return to the ones you have already done, and make sure that you can now solve them easily within the allocated time. When you do so, print a new copy of the test, so that you don’t get distracted by your previous notes, and feel like you are under real test conditions.
Finally, we are here to answer any of your questions, so if you get stuck trying to understand the explanations in the answer key, just drop us a line at:
[email protected]. We’ll be happy to fill any gaps!
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Instructions This practice test contains 26 questions and we recommend you take 60 minutes to complete it. This test assesses your ability to solve business problems using deductive, inductive and quantitative reasoning. While completing this practice test do NOT use any electronic devices such as a calculator or computer when performing the calculations to answer the questions. Electronic devices will NOT be permitted during the actual test administration. We also recommend you only use the blank space in this booklet to assist you in performing any calculations and recording any notes. Indeed, NO scratch paper will be allowed during the actual test administration. You will be presented with a scenario based on a real business case. Information related to each scenario will be shown in text, tables and exhibits. This information is presented in shaded areas and is distributed in sections throughout the scenario. The questions ask you to find the most appropriate answer to the problem as described using only the information presented. You should select one and only one answer to each question. This practice test begins on page 5 of this booklet. Only consider information contained within the scenario when determining your answer. Considering all information presented within the scenario is critical to answering questions correctly. After completing the test, score your answers using the answer key located at the end of this booklet. Add the number of correct answers to determine your final score.
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Selecto Selecto is the European leader in vending machine services for small and large businesses. The company has more than 5,000 employees, serving 5 million customers every day through 150,000 vending machines. Selecto generates over $650 million in revenue from a range of products and services. Products offered to customers include: coffee machines, food machines filled with sandwiches and fruits, snack machines filled with crisps and chocolate bars, water coolers and dispensers. Selecto provides a full service to their clients: this includes the machines’ installations, refills and repairs. The company only collects revenues from the sales of products in their machines, and therefore, chooses the variety of products offered in the machines. It is now the end of 2013, and Selecto’s overall profits have been declining since the beginning of 2011. The CEO of the company has hired your team to identify why this trend started two years ago. He tells you that the recent fall in profits has come as a surprise, and that he wants you to help him understand it. He also notes that no other large vending machines company has experienced a decline in profits over the past few years in Europe. Table 1 shows the revenue of Selecto, in millions of dollars, from the first half (H1) of 2011 to the second half (H2) of 2013: Table 1: Selecto’s revenue from H1 2011 to H2 2013 (in US$ million) Year H1 2011 H2 2011 H1 2012 H2 2012 H1 2013 H2 2013 Revenue 344 356 333 351 323 339
Exhibit 1 shows the total profits of the vending machines industry in Europe between the first half (H1) of 2011 and the second half (H2) of 2013, as well as Selecto’s profit margin in each of these semesters. The data for each semester is presented as a percentage of the data in H1 2011. Exhibit 1 Industry total profits and Selecto's profit margin from H1 2011 to H2 2013 116 114 112 110 108 106
Industry total profits
104
Selecto profit margin
102 100 98 96 H1 2011
H2 2011
H1 2012
H2 2012
H1 2013
H2 2013
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1. Which of the following statements best describes why Selecto’s CEO has hired your team?
A) The CEO wants your team to investigate how other companies in the industry have managed not to experience a decline in profits over the past two years
B) The CEO wants your team to investigate the decline in profits because his management team does not know what is causing it
C) The CEO wants your team to investigate Selecto’s decline in profits and would not be surprised if it was not caused by an industry-‐wide problem
D) The CEO wants your team to investigate if other vending machines companies have experienced a decline in profits over the past two years outside of Europe 2. Which element would be LEAST helpful to determine the cause of Selecto’s recent profit decline?
A) Selecto’s revenue, broken down by product and customer types, and their recent evolution
B) A comparison of Selecto’s cost structure with that of its direct competitors
C) The vending machine industry’s total profits and profit margin in recent years
D) A review of what customers have liked and disliked about their experience with Selecto’s vending machines in recent years 3. Which of the following statements is a valid conclusion, based on the data presented in Table 1 and Exhibit 1?
A) The rate of increase of industry total profits from H1 2011 to H2 2013 is equal to six times the rate of decrease of Selecto’s profit margin during these months
B) Selecto made 10% more profits over the year 2011 (H1 + H2) than it did over the year 2013 (H1 + H2)
C) Selecto made more profits in H2 2011 than it did in H1 2011
D) Selecto’s profits decreased by 2% between H1 2011 and H2 2013
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The research manager at Selecto gives you the following facts regarding customers’ purchasing habits at vending machines:
I.
Selecto’s machines are used more intensely in July and August because of the summer holidays
II.
Customers prefer purchasing snacks at vending machines in the morning
III.
Selecto’s machines do not offer any healthy snacks
IV.
Sales in the vending machines industry have shifted from traditional snacks to healthy snacks between 2011 and 2013
V.
Selecto’s machines are used more intensely in January and February because of the winter holidays
4. Which combination of the five facts above, if true, would be sufficient to explain the variation in Selecto’s revenue between H1 2011 and H2 2013?
A) I, III, IV
B) III, IV, V
C) I, II, III
D) II, IV, V
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The equipment supplier for Selecto tells the procurement manager about new coffee machines which reduce energy consumption and maintenance needs. The CEO wants to know whether these machines would reduce costs and contribute to increase profits in the future. The team compiles Table 2, which provides operational data regarding the coffee machines currently used and the new ones. Table 2: Data on the model of coffee machines currently used by Selecto and the new model offered by its supplier Current model New model Number of maintenance 4 2 visits per year Labour time per 2h 3h maintenance visit Labour cost per hour $9 $9 Annual electricity 1,200 kWh 1,000 kWh consumption Electricity cost 10c / kWh 10c / kWh 5. Assuming that the CEO only wants to buy the new model of machines for Selecto if the gains in electricity and maintenance cover the investment in less than three years, what is the maximum incremental price the CEO should accept to pay for purchasing the new model instead of the existing model?
A) $94
B) $104
C) $114
D) $124
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You meet with Selecto’s Head of Operations who suggests changing some of the product mix that is sold in the company’s machines. In particular, he thinks that MegaChoco bars should not be sold in his vending machines anymore, because customers’ demand for them has been steadily declining. “It used to be our number one product”, he says, “but customers want to buy fruit bars nowadays because they are healthier than chocolate ones! We should replace MegaChoco bars by FruityStar bars and I am sure our profits would increase.” His team provides you with the following facts regarding the different bars: • Selecto purchases MegaChoco bars for $0.50 per bar • The company sells about 1 million MegaChoco bars at $1 per bar • FruityStar bars cost $0.55 per bar for the first 700,000 bars ordered and $0.50 per bar thereafter to Selecto • FruityStar bars could be sold by Selecto at $1 per bar • Other costs add up to $0.40 per bar for both MegaChoco and FruityStar Exhibit 2 Number of bars sold by Selecto's competitors in 2013 Million 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0
MegaChoco FruityStar
Competitor Competitor Competitor Competitor A B C D
6. Assuming that Selecto sells 10% more FruityStar bars than it currently sells MegaChoco bars, which of the following statements is a valid conclusion?
A) Selling FruityStar bars instead of MegaChoco bars increases profits by $25,000
B) Selling FruityStar bars instead of MegaChoco bars decreases profits by $25,000
C) Selling FruityStar bars instead of MegaChoco bars increases profits by $50,000
D) Selling FruityStar bars instead of MegaChoco bars decreases profits by $50,000
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In an attempt to understand the competitive environment, the team compares Selecto’s costs and revenues to those of other vending machine services companies. The closest competitor to Selecto is Invira. It serves a similar type of clients and sells similar products. Table 3 provides a comparison of the two companies according to different metrics: Table 3: Data for Selecto and Invira for 2013 Selecto Invira Number of machines 135,000 75,000 Total number of product types available 10,000 3,000 across all machines Number of customers 7,000 4,000 Product costs as % of 31% 24% revenue Labour costs as % of 30% 32% revenue Machine costs as % of 26% 24% revenue Profit margin 13% 20% 7. Which of the following statements can be concluded from the data in Table 3?
A) Invira made more profits than Selecto in 2013
B) The average price of products is lower in Invira’s machines than in Selecto’s
C) Selecto has more machines per customer than Invira does
D) Selecto pays more for its vending machines than Invira does
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Saint John’s Hospital Saint John’s Hospital is a paediatric hospital dedicated to patients under 18 years old and based in Manchester, United Kingdom. It is a government-‐funded institution located in the western part of the city, where a lot of young parents have established themselves to start families over the past few years. Parents in the area are typically young professionals with a university education and comfortable financial means. Saint John’s estimates that it is servings about 300,000 households with children in the local community. The hospital runs three paediatric services:
1. Emergency services. Emergency services are open 24 hours a day, everyday of the year. Children with acute conditions that require urgent treatment from doctors can attend this service without appointment. Most patients go to emergency services by themselves but some of them are referred to this service by their family doctor.
2. Inpatients’ services. Patients who have attended emergency services and have been diagnosed with a condition that requires advanced medical procedures (e.g. an operation) or prolonged monitoring are admitted to the paediatric ward, where they are allocated a room with a bed and become inpatients. 3. Outpatients’ services. Children with conditions that do not require urgent treatment but demand specialist advice or monitoring are referred to the hospital’s outpatient services by their family doctor. Outpatients typically go to the hospital only for their appointment and then return home. The hospital does not charge families for its services. Instead, it keeps a detailed log of all the interactions it has with patients, such as the number of emergency attendances and outpatient appointments as well as the quantity of inpatients’ procedures it performed during the year. This log is submitted to a government body called the National Health Service (NHS) that audits it and pays Saint John’s for the services it provided to the local community. These funds are then used by Saint John’s to cover their costs. The hospital has been awarded an excellence certificate by the NHS in 2011. The award of this certificate is based on two main sets of criteria:
1. Patients’ safety. This is measured by the average time patients have to wait to see a doctor in emergency services, the quality of the medical procedures in place at the institution and other metrics.
2. Financial efficiency. This is measured by traditional financial metrics including fixed costs, variable costs, total costs per patients, etc. The management informs you that a number of senior paediatric doctors have retired in July 2013. The CEO of the hospital tells you that he thinks this might have decreased the quality of care offered, but the head doctor disagrees because younger doctors are better trained. Moreover, there were a few instances where families were disappointed by the care provided to their children and decided to publicise the issue in local newspapers. This directly affected Saint John’s reputation and had a negative impact on its finances, as some families then decided to avoid it. Copyright © 2015 IGotAnOffer Ltd.
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Due to these recent developments, the NHS has contacted the hospital’s management to inform them that it will re-‐evaluate the hospital’s excellence certificate in six months’ time. The NHS has made it clear that patient safety will be the critical factor to determine whether the hospital keeps its certificate. Your team has been hired to help the hospital maintain its excellence certificate. 8. Which of the following statements is the most accurate regarding the hospital’s efforts to conserve its excellence certificate?
A) If the hospital improves its patient safety metrics, its excellence certificate will be maintained
B) If the hospital improves its financial efficiency metrics, its excellence certificate will be maintained
C) If the hospital does not improve its patient safety metrics, its excellence certificate will not be maintained
D) If the hospital does not improve its financial efficiency metrics, its excellence certificate will not be maintained 9. Assuming that 84,000 patients attended emergency services in the last year and that 73% of them only visited once, which of the following statements is accurate about a typical day for the hospital during that time period?
A) 154 of the patients in emergency services that day will not attend emergency services again for the rest of the year
B) 168 of the patients in emergency services that day will not attend emergency services again for the rest of the year
C) 184 of the patients in emergency services that day will not attend emergency services again for the rest of the year
D) 208 of the patients in emergency services that day will not attend emergency services again for the rest of the year 10. Which of the following statements, if true, would BEST help determine whether patient safety has significantly decreased at Saint John’s Hospital since July 2013?
A) There has been a decrease in the number of patients going to Saint John’s since July 2013
B) There has been an increase in the number of patients going to rival hospitals since July 2013
C) Patient satisfaction has decreased by 30% since July 2013
D) The ratio of paediatricians to patients for a typical week has decreased by 20% since July 2013
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The management of the hospital gives you the results of a survey carried out in October 2013. Exhibit 1 below contains some of the results from the survey. Exhibit 1 Number of patients surveyed = 10,000 Destination of patients visiting the hospital 100% 90%
Inpatient services, 20%
Dominant diagnosis for patients visiting the emergency services Viral infection, 25%
80% 70% 60%
Other, 40%
Outpatient services, 35%
50% 40% 30% 20%
Emergency services, 45%
10% 0%
Respiratory condition, 15% Fractured bones, 10%
Tonsillitis, Burn, 5% 5%
11. Which of the following statements can be concluded from the data in Exhibit 1?
A) 25.0% of children visiting the hospital have a viral infection
B) 7.0% of children visiting the hospital are diagnosed with a respiratory condition
C) 10.0% of children visiting emergency services then go to inpatient services
D) 9.0% of children visiting the hospital are diagnosed with tonsillitis, a burn or a bone fracture 12. How many respondents to the survey visited the hospital because they had a viral infection?
A) Less than 2,250
B) Less than 1,125
C) At least 2,250
D) At least 1,125
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13. Which of the following arguments, if true, would best support Saint John’s Hospital case to maintain its certificate of excellence?
A) Other paediatric hospitals than Saint John’s have experienced a decrease in patient safety over the past few months
B) Studies have shown that patient safety is mainly driven by the processes in place within a hospital and Saint John’s safety processes have not changed since it was first awarded the certificate of excellence
C) Saint John’s is planning to hire senior doctors in the next 12 months to compensate the fact that some core members of its medical team retired in 2013
D) Saint John’s remains in the top 10 of paediatric hospitals for financial efficiency despite the recent drop in the number of patients visiting the hospital Exhibit 2 shows the cumulative cost of treating patients at Saint John’s emergency services over the past 12 months. Patients have been grouped based on the number of times they attended emergency services. Groups A and E represent the most and the least costly group of patients to look after, respectively. The management team also gives you the following information:
• Emergency services were attended 105,000 times in the past 12 months • The annual fixed cost of running emergency services is £4m • The average variable cost is £50 per attendance Exhibit 2 Cumulative total costs for emergency services (%) 100%
100% 90%
79%
80% 70% 55%
60% 50% 34%
40% 30% 20%
15%
10% 0% Group A Group B Group C 2.5k patients 5k patients 7.5k patients
Group D 12.5k patients
Group E 22.5k patients
Total number of distinct patients = 50k
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14. Which of the following figures is closest to the total costs incurred by Saint John’s emergency services to take care of patients in Group B?
A) £1.8m
B) £2.0m
C) £2.2m
D) £2.4m 15. Which of the following statements is FALSE based on Exhibit 2?
A) Emergency services spent £555 per patient in Group A over the past 12 months
B) Emergency services spent £352 per patient in Group B over the past 12 months
C) Emergency services spent £213 per patient in Group C over the past 12 months
D) Emergency services spent £178 per patient in Group D over the past 12 months
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StarCoffee StarCoffee is an international coffee shop chain with a very strong presence in North America, Western Europe, Australia, South Korea and Japan (the company’s “developed markets”). StarCoffee has also started developing stores in other countries, which it refers to as its “emerging markets”. StarCoffee sells three categories of products in its coffee shops:
1. Beverages. Whole bean coffees, coffee beverages (lattes, cappuccinos, etc.) and teas are prepared directly in the coffee shops. Ready-‐to-‐drink beverages such as juices and sodas are also purchased from several specialty suppliers and available in StarCoffee’s shops.
2. Food. Pastries, breakfast sandwiches and lunch items are sourced from national, regional and local suppliers and sold directly in the shops.
3. Packaged goods. Packaged coffee and tea, StarCoffee mugs and other StarCoffee branded products can also be purchased in shops by customers.
StarCoffee has historically had very strong revenue growth but is already very well established in its core developed markets. The CEO of StarCoffee has asked your team to investigate opportunities for the company to continue growing its revenue, by opening new stores in emerging markets, as he thinks revenue from StarCoffee stores in developed markets will experience very slow growth in the next five years.
The CEO has shortlisted 20 countries that he wants your team to look into. He expects you to rank them according to the amount of revenue growth they could generate for StarCoffee over the next five years. Copyright © 2015 IGotAnOffer Ltd.
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16. Which of the following statements best describes the thoughts of StarCoffee’s CEO?
A) The CEO thinks that most of StarCoffee’s revenue growth will likely come from emerging markets, as sales in developed markets will only grow modestly
B) The CEO believes that, in the next five years, the coffee shop market will grow faster in emerging markets than in developed markets
C) The CEO believes that the coffee shop market will continue to grow in North America, but that competition will intensify, which will make it difficult for StarCoffee to grow at historical rates
D) The CEO wants to stop opening new shops in developed markets, and focus the company’s investments on emerging markets
17. Based on data in Exhibit 1, which of the following statements is a valid conclusion about the coffee shop market?
A) Western Europe and Other developed markets will grow at the same pace over the next five years
B) Emerging markets account for 15% of the global coffee shop industry today
C) If forecasted trends continue, emerging markets will become bigger than developed markets in terms of sales in the next ten years
D) Emerging markets will have annual growth about two times higher over the next five years than Other developed markets have had over the past three years 18. Which of the following statements, if true, would NOT help explain the difference between the growth of the coffee shop market in the past 3 years in Western Europe and Other developed countries, and its forecasted growth in the next 5 years?
A) The average number of coffee cups consumed per person per day is expected to decrease in Western Europe and Other developed markets
B) The competition between coffee shop chains is expected to intensify in Western Europe and Other developed markets
C) Coffee shop chains have launched new product lines in the past three years, such as foods and packaged goods, but are not expected to launch any new significant product lines in the next five years in Western Europe and Other developed markets
D) The economy is expected to deteriorate in Western Europe and Other developed markets in the next five years, which will decrease customer spending in coffee shop chains
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19. Which of the following facts, if true, would best explain the difference between the future growth of the coffee shop industry in Emerging markets and the future growth in Western Europe and Other developed markets?
A) Western Europe and Other developed markets are not expected to experience significant population growth in the next five years
B) Emerging markets customers have been increasingly attracted towards foreign international brands in the food and beverage sector over the past few years
C) Emerging markets have the strongest combination of population growth and disposable income growth of all markets considered
D) Western Europe and Other developed markets are expected to consume less coffee per capita in the next five years as a result of health concerns After exploring overall market trends, your team starts analysing the performance of StarCoffee shops in emerging markets. The head of business intelligence provides you with the data below on comparable stores for different countries. The average waiting time is the time between the moment a customer lines up at the bar and the moment his order is delivered to him. Table 1: Data for comparable StarCoffee stores in different countries Average waiting time (minutes) Average number of customers per day per store Country 1 3min 35sec 600 Country 2 4min 10sec 1,200 Country 3 3min 15sec 1,500 Country 4 6min 05sec 500 Country 5 5min 40sec 1,600 Country 6 2min 55sec 900 Country 7 3min 00sec 1,100 20. Given Table 1, which of the following statements, if true, would NOT help the team determine if new stores could be opened profitably in a given state?
A) The more stores the company already has in a country, the more difficult it is to find profitable locations for new stores
B) The less stores the company already has in a country, the more difficult it is to attract new customers to new stores, since they are not familiar with the StarCoffee brand
C) The larger the network of stores StarCoffee is running, the more complex it is to manage its supply chains and suppliers relationships
D) As StarCoffee increases its number of stores, its customers’ loyalty and spending increases Copyright © 2015 IGotAnOffer Ltd.
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21. Based on the data in Table 1, which of the following statements is a valid conclusion?
A) Staff in Country 6 and in Country 7 are the closest in terms of efficiency, on average
B) Country 3 and Country 5 have the highest total number of customers per day
C) Customers in Country 6 always wait less than customers in Country 1, when they go to their StarCoffee store
D) StarCoffee only recently opened its first store in Country 4 22. Assuming a $1 million store just opened in Country 4, and that it generates a profit of $2 per customer, at which point will StarCoffee have broken even on that store?
A) In 2.6 years
B) In 2.7 years
C) In 2.8 years
D) In 2.9 years 23. Which of the following is NOT a valid reason for the poor average waiting time at StarCoffee shops in Country 4? A) Country 4 operates a different model of coffee shops than the other countries, whereby customers take a table and are served by waiters instead of going to the bar to place their orders
B) A vast majority of customers in Country 4 tend to go to StarCoffee shops during lunch hours which creates long queues
C) Staff in Country 4 has not been trained to execute their respective tasks as much as in other countries
D) The coffee drinking culture in Country 4 is very strong, and customers therefore like to drink coffee with their friends for longer times than in other countries Copyright © 2015 IGotAnOffer Ltd.
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In order to decide which market is most attractive, your team analyses the coffee consumption of the population in different emerging markets, as well as the typical size of cups for each country. In addition, StarCoffee’s management provides you with information on the total cost and price of a typical cup of coffee in different countries. Country A Country B Country C Country D
Table 2: Data for different countries Number of cups per Size of cups (litres) Cost of cup ($) capita per year (cu) (l) (co) 584 0.4 0.8 1,147 0.1 0.4 960 0.2 0.6 798 0.3 0.8
Price of cup ($) (p) 1.0 1.0 1.5 2.0
24. Which of the following countries has the highest consumption of coffee per capita in litres?
A) Country A
B) Country B
C) Country C
D) Country D 25. Which of the following formulae calculates the potential profit that StarCoffee could make per thousand litres of coffee sold per capita, in the various countries under consideration?
A) (p – co) x 1,000 / l
B) (p – co) x l / (cu x 1,000)
C) (p x cu) / (co x l x 1,000)
D) (p x l x 1,000) / (cu x co)
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Finally, your team explores the political risk of further developing StarCoffee in emerging markets. In particular, governments have threatened to implement special economic measures against international coffee chains that are developing in their countries, because they take business away from smaller local shops. The CEO of StarCoffee asks your team which country he should be most concerned about, with regards to these threats. Exhibit 2 shows the probability that the government implements its threat within the next twelve months, as well as the cost that would be incurred by StarCoffee.
Exhibit 2 Potential economic impact of different political risks for StarCoffee Economic cost if government threat implemented ($ million)
14
Country F
12 10 8
Country E
6 Country H
4 Country G
2 0 0
0,1
0,2
0,3
0,4
0,5
0,6
Probability of threat being implemented
26. Which of the following lists is the best ranking of countries, from the country which the CEO should be MOST concerned about, to the one he should be LEAST concerned about?
A) F, E, H, G
B) H, G, E, F
C) H, F, G, E
D) H, F, E, G
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Answer key Selecto 1. C – The CEO states that he wants your team to look into the recent decline in overall profits and comments that he is not aware of other companies experiencing a similar issue. This implies that he is hypothesising that the profit decline is not an industry-‐wide problem. Answer C is the only one that captures both elements of the CEO’s thoughts. 2. D – Options A, B and C all refer to costs, revenues or profits of Selecto or the industry as a whole. Option D is the only option that does not refer to an element that we know directly drives Selecto’s profits. 3. C – Selecto’s profit margin decreased by 1% between H1 and H2 2011. In the meantime the company’s revenue grew from $344 million to $356 million or 3.5%. Selecto’s profits therefore grew by about 2.5% (Profit H2 = Profit H1 x (1 + 3.5%) x (1 – 1%) = Profit H1 x 1.025). The other options are either wrong or cannot be concluded from the information provided. 4. A – If Selecto’s vending machines are used more intensely in July and August (I) this is sufficient to reasonably conclude that the company’s revenue is higher in H2 than in H1 in a typical year. In addition, if Selecto’s machines carry no healthy snacks (III) and sales in the industry have shifted towards healthy snacks (IV) this is sufficient to reasonably conclude that Selecto’s sales have gone down over the years. All other options either contain a subset of points I, III and IV or contradict them. 5. C – The annual cost for each model is equal to the sum of labour costs and electricity costs. For the current model, 4 maintenance visits per year of 2 hours each at $9 an hour amount to $72 (4 x 2 x 9 = 72). In addition, the consumption of 1,200kWh, at $0.1 each, costs $120. The total annual cost for the current model is therefore $192. Similarly, the total annual cost for the new model is $154. The annual operational savings from switching to the new model are therefore $38 ($192 -‐ $154 = $38). Over three years this adds up to $114 (3 x $38 = $114). The CEO should therefore not accept an incremental price greater than $114 for the investment to pay back within three years.
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6. B – The revenue from selling 1 million MegaChoco bars is $1 million. The cost for each bar is $0.5 for the bar itself, and $0.4 to fill the machine and cover other costs. In total, Selecto pays $0.9 million (1 million x $0.9) for the bars and makes $100,000 profit on them ($1 million -‐ $0.9 million). Selecto is expected to sell 10% more FruityStar bars than MegaChoco ones or 1.1 million bars. On the first 0.7 million bars, Selecto makes a profit of $0.05 per bar ($1 -‐ $0.55 -‐ $0.4) or $35,000 in total (0.7 x 0.05 = (7 x 5) / 1,000 = $0.035 million = $35,000). On the remaining 0.4 million bars, Selecto makes a profit of $0.1 per bar ($1 -‐ $0.5 -‐ $0.4) or $40,000 in total (0.4 x 0.1 = (4 x 1) / 100 = $0.04 million = $40,000). The overall profit the company would make on FruityStar bars is therefore $75,000 ($35,000 + $40,000). The overall profits would therefore decrease by $25,000 ($100,000 -‐ $75,000). 7. C – Selecto has 135,000 machines and 7,000 customers or an average of 19.3 machines per customer. Invira has 75,000 machines and 4,000 customers or an average of 18.8 machines per customer. Selecto therefore has more machines per customer than Invira does. The other options are either false or cannot be concluded from the data provided.
Saint John’s Hospital 8.
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C – Since patient safety is the critical factor that will be used by the NHS, it needs to be improved by Saint John’s in order to have a chance to maintain its certificate. However, option A is false, because an improvement in patient safety alone will not guarantee that the excellence certificate is maintained. On the other hand, if patient safety does not improve, it is very likely that the certificate will be dropped. Reponses B and D are not accurate because they refer to financial efficiency, which is not the critical factor in the decision. B – On average, 230 patients visit emergency services on a typical day (84,000 / 365). Of those patients, 73% or 163 are making a unique visit to the service in that year and therefore will not attend again. D – In order to determine if Saint John’s has become less safe, it is necessary to apply a safety indicator to Saint John’s and to analyse the evolution of this indicator over time. Option D is the only one that refers to a safety indicator applied to Saint John’s over time. The other options either do not refer to a safety indicator or do not apply it to Saint John’s. In answer A, the number of patients could have decreased for reasons unrelated to safety, answer B refers to other hospitals, while in answer C, the decrease in patient satisfaction could be due to reasons other than safety. D – 10%, 5% and 5% of patients visiting emergency services are diagnosed with fractured bones, burns or tonsillitis respectively, which adds up to 20% in total. Out of the total number of patients who were surveyed, 45% have visited emergency services. 9% of children visiting the hospital are therefore diagnosed with tonsillitis or a bone fracture (20% x 45% = 9%).
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12. D – There were 10,000 respondents to the survey in total, 4,500 of which visited emergency services (45% x 10,000). Of those visiting emergency services, 25% were diagnosed with a viral infection. The number of patients diagnosed with a viral infection in inpatients and outpatients services is unknown. There were therefore at least 1,125 respondents (4,500 x 25% = 1,125) to the survey diagnosed with a viral infection (i.e. those who visited emergency services). 13. B – Option B demonstrates that the current level of patient safety has likely stayed the same between the time when the hospital was awarded its excellence certificate and now. Option A addresses the patient safety at other hospitals. Option C addresses future patient safety rather than current one. Option D addresses financial efficiency, which is not a critical factor in the decision. 14. A – The variable cost of emergency services over the past 12 months was £5.25 million (105,000 attendances x £50 = £5.25m). In addition, the fixed cost related to the service was £4 million bringing the total cost to £9.25 million. Group B accounts for 19% of the total cost (34% -‐ 15% = 19%) or £1.76 million. The closest figure is therefore option A. 15. C – The total cost of running emergency services is £9.25 million (as in question 14). Group C accounts for 21% (55% -‐ 34% = 21%) of the total cost, or £1.95 million. There are 7,500 patients in Group C who cost on average £259 each (£1.95 million / 7,500 patients). Option C is therefore false.
StarCoffee 16. A – The CEO suggests opening new stores in emerging markets as an opportunity to grow the company’s revenues, so as to compensate the slow future growth of revenues from developed markets. This implies that the CEO thinks emerging markets should have a bigger proportion of sales in the future than today. This, in turn, implies that he thinks most revenue growth will likely come from emerging markets, as sales in developed markets will only grow modestly. Option B addresses the market as a whole, which the CEO does not refer to. Option C does not address other developed countries than North America and is therefore incomplete. Option D is not valid, as the CEO does not mention investments in his instructions. 17. D – Other developed markets grew at about 10% per year over the past three years ((27.9/21.0)^(1/3) – 1 = 10%). Meanwhile, emerging markets are forecasted to grow at about 20% per year over the next five years ((17.4/7.0)^(1/5) – 1 = 20%). This implies that emerging markets will grow about two times faster per year in the next five years than other developed markets have over the past three years. 18. B – Option B addresses the competition in Western Europe and Other developed markets but it does not explain the change in growth of the coffee shops market as a whole between the past
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three years and the next five years. Options A, C and D all provide elements that could partly explain the change in growth in these markets. C – Option C is the only one that addresses the difference in growth between all the markets at stake. Options A and D relate to Western Europe and Other developed markets only. Option B is focused on Emerging markets only. C – Option C does not address the profitability of opening a new store but rather the complexity of managing the supply chain and suppliers in a large network of stores. All other options address the potential location of new stores, the difficulty of attracting new customers, and customers’ loyalty and spending which are relevant pieces of information to determine the potential profitability of new stores. A – The average waiting times in Country 6 and 7 are respectively 2 min 55 sec and 3 min 00 sec, which are the closest two waiting times in the list. This implies that staff members in those two countries are the closest in terms of efficiency on average. Option B cannot be deduced from Table 1 because the number of stores in Country 3 and 5 is unknown. Option C cannot be deduced from the data because the waiting times provided are averages. Option D cannot be concluded from the data either, because no information on opening dates is provided. C – 500 customers visit StarCoffee shops on average in Country 4. Assuming a profit of $2 per customer, the store would earn $365,000 per year. If the store cost $1 million to launch, the company would break even in 2.74 years. The closest response available is 2.8 years. Note that the company will not have broken even yet after 2.7 years and that option B is therefore false. D – The duration for which customers stay in StarCoffee shops does not influence the average waiting time and option A is therefore not a valid reason for which Country 4 has a poor average waiting time. All other responses can partly explain why the average waiting time in Country 4 is poor. D – The consumption per capita in litres is calculated by multiplying the number of cups per capita per year by the size of cups. Country A, B, C and D respectively stand at about 234, 115, 193 and 239 litres of coffee per capita. A – The profit per cup is given by (p – co). The profit per litre is given by (p – co) / l. The profit for one thousand litres is given by (p – co) x 1,000 / l. D – The potential economic impact is measured by multiplying the economic cost and the probability that the company incurs this cost. Following this approach, the potential economic impact in Country H, F, E and G is respectively 1.5, 1.2, 0.6 and 0.4 million dollars.
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