BCG Potential Test Sample Question

Hi Floyd,

In regards to #1 you have to figure out what % of total revenues the "Other Costs" equals. The NBA's other costs are $10M and they have total revenues of $65M (5+10+50). As such, their other costs are 15.38%.

If our client could have the same cost structure, their "Other Costs" would be $4.77 ($31M times 15.38%). As such, their additional profit would be 5.33 (Current Other Costs of $10M minus the new costs of $4.77 = added pure profit).

Adding the additional profit to their existing profit gets us $7.33M, so the answer is C - $7M

Hi. Even if after a few years, I got interested in this question.

This is a way to solve the question. Information we find:

1. In the chart to the left we see that in the client league, each team has on average $31M of revenues.
2. We know there are 18 teams on total, and 5 are college teams.
3. The answer suggests that there are maximum 5 major teams.

The revenue column may be confusing, but to make sure we understand it is about avg revenues for EACH team, not the total, just sum the revenues. The total is $115M. If we divide this by 18, we have $6.4M, far lower than the average revenues showed in the previous chart on the right side.

Calculation:

Given it is possible to use the calculator, one quick way is by iteration and a little of judgement. Let's then try choosing a combination of teams, multiplying each team revenues (e.g. college teams is $20M) for the number of teams, and dividing by 18.

If:

• 5 college teams: 5x20=100
• 8 small teams: 8x25=200
• 5 major teams: 5x70=350
• A Total of $650M revenues and if divided by 18, average revenue is $36M, much higher than the $31.1M showed in the previous chart on the right side.

I will then drop major teams by 2 as the average was far lower.

If:

• 5 college teams: 5x20=100
• 10 small teams: 10x25=250
• 3 major teams: 3x70=210
• A Total of $560M revenues and if divided by 18, average revenue is $31.1M, so we can pick “3 teams” as the answer.

I hope this is useful for everyone.