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Moldovan Coffin Maker to Exit Coffin Manufacturing Business. Consulting Firm: McKinsey Company first round full time job interview. Case Interview Question #00689: Our client Moldovan Coffins is Write Email After A Meeting -, a high-end coffin maker in the country of Introducing Yourself, Moldova. How To Write A Great Follow-Up A Meeting. Moldova, officially the Template, Republic of Write Follow-Up A Meeting -, Moldova, is a landlocked country in Eastern Europe located between Romania to the west and 7+ Character Letters For Court | Resume Reference Ukraine to the north, east, and How To Follow-Up Email After A Meeting - south. Moldova declared itself an independent state with the same boundaries as the Moldavian Soviet Socialist Republic in 1991 as part of the dissolution of the Mortician Salary,, Soviet Union. The total population of the country amounted to 4 million (2004 Moldovan census). The owner of Moldovan Coffins business has seen substantial change in his market in recent years and A Great Email is contemplating the Free Resume Example And Writing Download. Usa Resume, future of his business.

Up until now, he has been in the business of building high-quality, handcrafted coffins largely by How To Write A Great Follow-Up Email After, hand with a skilled labor force. Recently, however, he has become aware of a new technology that would allow him to build machine-made coffins with much less labor. Should he invest in this new technology? And should he even remain in the coffin-making business in the first place? Why or why not? Note that this case requires the interviewer to drive key points in the discussion. Allow the candidate to formulate a plan and Mortician Salary, Job Description And Education - then prompt him/her to consider each of the topics listed below. Question #1: What strategic alternatives should the owner of the coffin business consider? If the candidate doesn’t get all of this, help them along since we need to lay this foundation for Write Follow-Up After, the rest of the case – We need to decide firstly whether to stay in Funeral Program Template Word.funeral Program Template, the coffin business at all and if so, whether he uses the new technology: Option 1: Sell the business to a third party.

Option 2: Sell the assets of the company and shut it down. Option 3: Keep operating as is. Option 4: Keep operating and invest in the new technology. Question #2: How would you figure out the current value of the coffin business? Provide the following additional information if the candidate asks for it clearly and directly. Market Size – If the candidate asks for the size of the market, first make him/her brainstorm about different ways to determine market size. How To Write A Great Follow-Up. A good candidate should come up with at least 4 different ways, such as: Calculate from the market’s total population, population growth, and birth rate. Review of death records for a period of time.

Take sample of the number of obituaries in paper serving given population base. Calculate from total population, average life expectancy. Question #3: Now make the candidate calculate the market size, giving them the following data: Population of Usa Resume Example And Writing Download. Usa Resume, Moldova: 4 million Population Growth: 0% Average Life Expectancy: 75 years Age Distribution: assume a flat age distribution, i.e. same number of people at every age. Burial Customs: 75% of deaths are buried in coffins. (4 million) x (1/75) * (75%) = 40,000 coffins purchased per Write Email - year. Note that the candidate needs to quickly realize that every year, 1/75th of the total population will turn 76 and therefore (on average) will die.

Question #4: Now make the candidate calculate the value of Moldovan Coffins’ business, giving them the following data: Price – Coffins are priced at $5,000 for a hand-made high-end coffin. Costs – Material accounts for 10% of the direct cost, while labor accounts for the other 90%. COGS is $4,800 per coffin. Fixed costs for the business are $700,000 per year.

Assume all assets are fully depreciated and ignore taxes. Competition – The client Moldovan Coffins has a 10% market share and Of Employment Letter Verification a relative market share of A Great Email After A Meeting -, about 1 (if asked, you may explain that relative market share is the ratio of the company’s market share to that of Template Microsoft Word.funeral Program, its nearest competitor.) Market Trends, Regulation, etc. – If asked about any exogenous factors, simply tell the candidate to A Great Follow-Up Email After A Meeting -, assume that the market is expected to continue as it currently is. The candidate needs to calculate the value of the business now. Program Microsoft Program Template. This is a pure mathematical exercise. Margin per coffin = $5,000 – $4,800 = $200 Contribution Margin = $200 per coffin x 40,000 coffins x 10% market share = $800,000 Profit = Contribution Margin – Fixed Costs = $800,000 – $700,000 = $100,000. Assuming a discount rate of 10% (candidate can assume anything reasonable here as long as they are consistent later), a perpetuity with cash flows of $100,000 per year has a present value of $100,000 / 0.1 = $1 Million. So the current business is worth $1M whether they keep it or sell it. Question #5: So now what is the value of the company if it were shut down and Email After - the assets were sold? Additional Information to give if asked:

Assets – Since the firm has been building coffins by hand, the fixed assets are essentially only the land and improvements. These are owned outright by the company. When the Report Free Download, candidate asks for How To Write A Great Email After A Meeting -, the value of the land, have them brainstorm ways that they might determine this. Introducing Yourself. They should come up with at least 3 good ways, such as: Look for comparable real estate and determine recent selling price. How To A Great Follow-Up. Find comparable commercial real estate and determine the rent per square foot, then discount the cash flows generated by renting the property. Determine rate of appreciation for property in the area and then apply to book value of current land and improvements. Give the candidate the Sample Marketing Report In, following information and have them calculate the value of the property: Book Value of Land: $20,000 Book Value of Improvements: $80,000 Years Owned: 48 Average Real Estate Appreciation: 6% / year. Using the How To Email, “rule of 72?, a 6% growth rate will double the investment every 72/6 = 12 years.

Since the property was held for Marketing In, 48 years, the current value will be $100K * (2 x 2 x 2 x 2) = $1.6M. Since the assets ($1.6M) are higher than the value of the discounted cash flows ($1M), then it would make more sense to liquidate the business and Write Follow-Up Email A Meeting - sell the assets. Question #6: What would the value of the company be if the owner invests in the new technology? Provide the following information if asked: Investment – Investing in the new technology will cost the firm $1M. Cost Savings – Material costs remain the same, but labor costs are reduced by 50%.

Proprietary Nature of Technology – The new coffin-making technology is being offered for sale by a machine tool company, who holds the patent. They are not offering exclusivity to Introducing Yourself Essay - Academic Essay, any customers (i.e. How To Write After A Meeting - they will sell to Moldovan Coffin’s competitors if possible). Competitive Threat – It is Marketing Free Documents, not known whether the competitors have acquired or are planning to acquire this new coffin-making technology. Customer Preferences – While the machine-made coffins are not “hand made”, the quality perceived by the customer is the same or better. It is believed that the customer will be indifferent between the quality and appearance of How To Write Email, a hand-made and Sample Documents In a machine-made coffin.

Brand Impact – The candidate may argue that a machine-made coffin might negatively impact Moldovan Coffin’s brand. If so, ask them how they would test this (e.g. How To. consumer research), but tell them to assume that it would have negligible impact. Since Moldovan Coffins has no proprietary control over the technology, it is Resume Example And Writing Usa Resume, likely that competitors will also acquire it, resulting in an overall lowering of the industry cost structure. If this is the case, price will also fall as competition cuts price in an attempt to How To A Great Follow-Up After A Meeting -, gain share. If we assume that gross margins remain the same, since the industry competitive structure has not changed we can calculate the new margin contribution as follows: Gross Margin = $200 / $5,000 = 4% Labor Cost = (4800 x 90%) x 50% = $2,160 Material Cost = 4800 x 10% = $480 COGS = $2,160 + $480 = $2,640 Price = $2,640 / (1 – 4%) = $2,718 Contribution Margin = $2,718 – $2,640 = $78 per coffin Profit/Loss = $78 * 4,000 – $700,000 = -$388,000. So the introduction of the new technology to the market might be expected to reduce industry profits, making this business completely unprofitable. Candidates could argue other scenarios, by assuming that the Proof Letter | Employer, industry would be able to maintain higher margins than we have assumed here, so the answer may be different.

They should recognize, however, that the introduction of this non-proprietary technology will significantly reduce industry pricing in the absence of some other form of price support (such as branding, collusion between players, etc.) A star candidate will see that his/her time is nearly up and will present a recommendation for the client without prompting. If the interview is A Meeting, within 3 minutes of the end, ask: “The owner just called and said he has an offer to buy his business. He needs to know whether he should take it right now.” Given the credible threat of the industry becoming unprofitable due to the introduction of this new technology, the owner should look to sell the company as soon as possible. Taking into account the Salary, Job Description And Education -, assets of the firm and the present value of the expected cash flows of the business itself, he should attempt to liquidate the business and to sell the assets for Write A Great Email After A Meeting, around $1.6M. If the owner is unable to sell the business now, he can continue to operate the business as a cash cow, but should not invest in the business above what is necessary to Letters For Court | Resume Reference, keep it operating at After A Meeting its present level. Job Description And Education. He should expect the business to become less profitable as the industry moves to Write Follow-Up A Meeting -, mechanization, and should eventually look to sell the assets of the company and close the firm. This case was given by McKinsey in Yourself Essay, one of their first-round interviews and is a typical “command and control” style McKinsey case.

In this style of case, the interviewer allows the A Great Follow-Up A Meeting -, candidate to Program Template, drive the -, case initially to explore possible routes to a solution. However, once the candidate has laid out a plan, the interviewer takes control and asks the 7+ Character For Court Reference, candidate to solve a few specific problems before coming to the final conclusion. When giving this case, allow for some initial planning and brainstorming by How To Follow-Up After A Meeting -, the candidate, but then firmly take control of each of the “modules” described in the case. Try to Marketing - 9+ Free Download In, move the Write A Great Follow-Up, candidate along through each of them, since in the actual interview only Sample Marketing Report Template Free Documents Download In, those candidates that complete all of the sections will be considered to Follow-Up Email After A Meeting, have done well. This case tests mental horsepower and the ability to move to conclusions quickly.

39 Responses to Moldovan Coffin Maker to Exit Coffin Manufacturing Business. What is the difference between option 1 : Sell the business to a third party and option 2 : Sell the assets of the company and shut it down? One of Proof Of Employment | Employer Letter, them you are selling the business as a profitable company (e.g. Write A Great Follow-Up Email A Meeting - I earn x, therefore the company is worth y). Businesses are effectively an operation that uses assets to make money, so you are selling the earning potential of the businesses, without caring about the Program Microsoft Program, pieces of it. The other option is to Write After A Meeting, forget about profitability, shut down the business and just sell the assets off for what they’re worth.

In this situation, you are strictly looking at the parts and Usa Resume Example And Writing Usa Resume not the business as a whole. I was looking at the last calculation for profit/ loss. The calculation is 78$ x 4000 – 700000 = -388000, where does that 4000 comes from? Thank you! 4000 comes from the assumed 10% of market share of 40 000 coffins sold per year. I think it is How To Write After A Meeting, lazy to assume the gross margin will stay the same after the adoption of innovative machine, which all the industry adopts. It can use the Expected revenue/(margin%-discount%)+NCF. For example, He can assume in 5 years, all players will adopt the technology (which is impossible, because some will exit the mkt), and gave a beginning margin%=55% and Marketing Report Template Free discount rate will be 10%(50%/5 yr.), then he will get: $5000*(55%+45%+35%+25%+15%)*4000 and (5000*4%)/5% – 5000*4% 3.12M+1M=4.12M, then everything is reasonable. How To Follow-Up After. And I don’t think this is difficult to calculate though. Why not the Proof Income Verification Letter, option of importing (cheaply) from China?

At least for a cash cow period. At what level would this case study be presented? What year university? Assumption that the price will drop to maintain the same level of gross margin is not practical. It will only go down by the amount that the companies can afford given the COGS and Write Email After A Meeting fixed costs. Then, for the purpose of the exercise, if the COGS is the same across the market, the fixed costs is what will drive the price drop and how it affects the Proof | Employer Letter, competition.

Why would selling the business be a better option? The funeral business would be an How To A Great Email After A Meeting -, ever increasing business of which the client already has 10% market share. Would it not be possible to diversify in to the new technology alongside the handmade coffins and Free Example Download. Usa Resume increase the current market penetration to How To Write Follow-Up -, also capture the machine made coffin market? If you are able to capture a mere 5% more of the market it would give the Mortician Job Description And Education, client more scope, better profits and Write A Great After A Meeting also a return on investment in approximately 4yrs, with offering the machine made coffins at approximately $4000 per coffin. Funeral Program Template Word.funeral. That’s a 20% reduction. Furthermore the client would have the opportunity of been one of the 1st in the market to adopt the tech thus better establishing his hold on Follow-Up Email After the market. Would this not be an option? In the possible answer for Letter, question 6 the price calculation is wrong: 2640/(1-4%)=2750 and not 2718. Please correct. Yeah, I wasted a lot of How To Follow-Up Email A Meeting, time to see how they reached 2718, it’s incorrect.

Yeah..thanks for pointing it out.. Its incorrect..I too wasted a lot of time on it!! Another suggestion here would have been for the interviewee to articulate their rationale for Funeral Program Template Program Template, coffin price decrease as the result of technology advancement using the supply demand curve, showing the supply curve shifting to the right consequently lowering the market clearance price, albeit conceptually. This dynamic would also reduce barriers to Follow-Up Email After, entry, where competiton will increase, and buyer power also increase. I think I have solve all 6 free sample cases. I should have been granted the access to And Education -, all the cases. Please feedback to my email box.

Thanks. Can you please send me the rest of 5 case studies. Thanks. You can check the other 5 cases, I’ve put down my solutions under each of those 5 sample cases. Please help grant me the access to the whole case database. Thanks. The biggest issue with the How To A Great After A Meeting, answer is when calculating the Resume And Writing, cost and benefit of investing in new technology, the interviewee failed to consider the potential profits in a multi-year time frame. It’s reasonable to recoup the investment in How To A Great Follow-Up -, a several year time frame. It’s okay to lose money for the first year. Also, interviewee only considers the domestic market, it’s quite possible that the client could expand business to international regions.

i think the answer for question 6 is wrong. have some questions about the assumptions above. The average salary in Moldova in roughly $300 a year, no one is spending $5000 on a coffin. q6 is about the value of the Sample Report Template - 9+ Free Documents Download In, company, not about the profit of the investment. New profit per year is 8,74m. I was given this case by a Strategy guy (with the Write Email After A Meeting -, above solution lying in front of him; more candidate-led than at McKinsey though).

I never got to #5 due to wasting too much time before, and did #6 differently (i assumed steady prices but mentioned that this assumption may not be appropriate if the quality of coffins is reduced to Mortician Salary,, the quality of the coffins of competitors… he didn’t seem interested in whether the Follow-Up Email After A Meeting, calculations were correct because they’re not included in the above solution…). But well, at least I did some own thinking whereas the interviewer needed help from McKinsey for devising a case… lame. Why is investment for new technology ($1M) not taken in - Academic, consideration while calculating the profit value? I guess that the investment is How To Write Follow-Up After -, already unprofitable even without taking the Sample Marketing Template Free, investment into account. If the profit was positive, we could calculate the time it would take to pay off the How To Write Email -, initial investment. What is the “rule of 72?? The rule of 72 states that if you divide 72 by the interest rate you can find how long it will take for the investment or business to double in value. Example: You want to find how long it will take an investment of yours to double when the investment is consistently earning a 10% interest rate. You divide 72 by 10: 72/10 = 7.2 years.

This means it would take 7.2 years for the investment to double. What it meant 2?2?2?2. 2*2*2*2 is the number of times the land has doubled in 48 years (48/12; since it doubles every 12 years), I think. Anton i think your right. Mortician. 2640 + 4% Thank you. I kept re-doing the A Great Follow-Up Email A Meeting, calculation and kept coming up with $2,750. A “typical ‘command and control’” McKinsey case? Most McKinsey cases are interviewer led now, this is Sample Report - 9+ Free Documents, dated!

Command and control = interviewer led. Why are we reducing the price?. The objective of introducing new technology is to increase the How To Write A Great A Meeting, margin and not decrease the price. Resume Example And Writing Download. Usa Resume. We should assume price remains the same $5k and not the margin. The thing that you have to How To A Great Follow-Up Email After A Meeting, recognize is that not only do you want to increase your itemized profit margin, you want to increase your market penetration. If Moldovan keeps its price at $5000 and the coffins take $2640 to make, you’re correct that our profits absolutely SKYROCKET: $(5000-2640)*0.1*40,000 = $9.44M gross profit.

Buuuuut your competitor might’ve had the Reference Letters | Resume Reference, same plan to buy the new equipment, and thinks he can cut in on your share of the market if he lowers his prices some — take a hit on How To Write A Great Follow-Up Email A Meeting - the itemized profit, but compensate with an increased volume. Letter Income Verification. Let’s say he drops his prices by 10%, to $4500. $(4500-2640)*.1*40,000 = $7.44M gross. But now his coffins costs $500 less than yours; that will almost certainly eat into your share of the Write A Meeting, market (and your share of the profit). 7+ Character Reference. Ignoring the rest of the How To A Great Email -, market than our 20%, we can determine how much of your market he’d need to take to Template Word.funeral, become more profitable than you: That means if 12% of your customers are interested in his price drop, his business becomes more profitable than yours; but you’d still both have a gross profit of $8.8M gross, and both make lots of money.

But since the GNI in Moldova is $5180, that $500 represents. 5 weeks’ pay, and people probably aren’t too brand-loyal to their coffin-maker. I’d expect that he’d take in almost your entire market share, which would double his gross profit to $14.88M — way higher than the amount you were hoping to make by keeping your prices the same, even. If you’re willing to follow his price drops, you’ll both keep your respective !0% market shares; and - the competitive pricing results in a better value to the consumer. If you’re actually competitive.

If you want, you could instead form a sort of partnership with your competitor — you recognize that if everyone keeps their prices high, there’s no cheaper version to turn to, and everyone can optimize profits. Mortician. This is called an A Great Follow-Up Email -, oligopoly. From another perspective, we previously said that liquidating the business would earn you $1.6M. Now, that’s obviously a lot less than what you could make if you kept your gross margin a lot higher than 4%; but what’s the lowest you can sell your coffins for in order to make the prospect better than liquidation? That $1.6M assumption valued the land over Letters | Resume, the next 10 years. Logically, this means that our baseline is simply to make greater than $160,000 in net profit every year. The fixed costs are $700,000 yearly, and the $1M tech will cost an How To Write A Great Follow-Up -, average of $100,000 each year over Funeral Program Template Word.funeral Template, that decade span. So we see that we need to make $960,000 on Email average. As long as you’re selling your coffins at Program Template Template $2880 or higher (10.2% gross margin), your business can remain more profitable than selling it if you buy into the new technology. Your prices are 42% lower, which is good for Moldovans; you’ve increased your net profits by 60%, which is good for you; and don’t have to sell your business, which may or may not make you happy.

All in all, a great (and consumer-friendly) option IF you can convince your competitors to play ball. Your example is Write Follow-Up After, called ‘price fixing’ which is Introducing Yourself, illegal, not an Oligopoly. q6 is about the How To Write Follow-Up Email After -, value of the company, not about the profit of the investment. New profit per year is 8,74m. value company is therefore 87,4m, given it is a perpetuity, and Template - 9+ Download In minus 1 for Write Follow-Up Email, the investment=86,4m. In the possible answer for question 6 the Funeral Word.funeral Template, price calculation is wrong: 2640/(1-4%)=2750 and How To Write A Great Follow-Up - not 2718. Please correct.

What is the reason of taking discount rate of Introducing Yourself - Academic, 10% for perpetuity? can we assume that is it driven by inflation rate on the level of 10%, as market growth is 0%? Discount rate in this case is most probably the How To A Great Follow-Up After, average cost of Example Download., capital or opportunity cost of capital for the client. How To Write A Great Follow-Up After - I think nominal growth rate is assumed to be zero here.

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