Required Revenue Increase of RetailBankingCo

Question

Required Revenue Increase of RetailBankingCo

Req. rev. increase RetailBankingCo = (5% ÷ 3) + 5% = 6.67%

What was the logic behind it? I did not get it

is it Trailing commission+% of close to op profit /N°of products?

But we have 4 products here

Answer 1

Hi there,

You need to divide by 3 because the average lifetime of the products is 3 years, not 4.

Best,
Cristian

Answer 2

Hi there,

Great question! Hagen has already answered, but make sure to read all sections of a case to better understand. Additionally, these are the types of “tricks” that are common in cases so the interviewer can check that you are thinking rationally about things (even if you have not “learned” that exact thing)

Answer 3

Hi there,

Thank you very much for this question. I would be happy to share the solution to it:

In section “Background”, it is stated "The average lifetime of these four products is three years.”
As such, given that the closing commission is by definition paid only once, one needs to divide the closing commission by 3 (for the sake of simplicity, compound interest can obviously be ignored).
Lastly, since the commission model is the same for all four products, the required percentage revenue increase is independent of the number of products.

If you would like a more detailed discussion on how to best prepare for your upcoming interviews, please don't hesitate to contact me directly.

Best,

Hagen