Shouldn't the break-even be achieved in 13th Year?

Question

As per the calculation section of Question 2, "there is a sale of 120 bottles @ $250 / bottle, giving a big push in revenue of $30,000. "

But, instead of 120 bottles, there is a sale of 192 bottles (120 bottles from kick start capital and 72 purchased in Year 1). Hence, the total revenue in Year 6 is $48,000.

Considering this, breakeven should be achieved earlier by the 13th year, instead of the 15th year.

Answer 1

You would be right… if you assume that in year 13 you stop reinvesting in new bottles. But I don't see why you would assume that. So in year 13, while it seems that get to +2.1k positive, please notice that you simultaneously invest 13.2k in new bottles, therefore you remain in the negative (-11.1k).

This is the cash flow per year. Each bullet number is the year and between parenthesis the accumulated cash flow

-13.5k -13.2k (-26.7k)
-13.2k (-39.9k)
-13.2k (-53.1k)
-13.2k (-66.3k)
-13.2k (-79.5k)
+30k +18k -13.2k (-44.7k)
+18k -13.2k (-39.9k)
+18k -13.2k (-35.1k)
+18k -13.2k (-30.3k)
+18k -13.2k (-25.5k)
+18k -13.2k (-20.7k)
+18k -13.2k (-15.9k)
+18k -13.2k (-11.1k)
+18k -13.2k (-6.3k)
+18k -13.2k (-1.5k)
+18k -13.2k (3.3k) → Break Even.

Answer 2

Hi Abhinav,

Pedro has laid it out nicely - just remember, you can't make assumptions in cases without confirming with the interviewer! Make sure you revise your understanding of breakeven…it's very rare that a condition will change once n >2 or 3

Answer 3

Hi Abhninav,

I would suggest you share the entire case prompt and questions here, otherwise people will not know what case you are referencing and will therefore not be able to help you as effectively.

Thank you

stephan

Answer 4

Hello!

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Financial concepts: Balance sheet, Income statement/P&L and Performance ratios (based on sales and based on investment), +1 practice case
Market structure & pricing: Market types, Perfect competition markets (demand and supply), Willingness to pay, Pricing approaches, Market segmentation and Price elasticity of demand, +1 practice case
Marketing and Customer Acquisition: Sales funnel, Key marketing metrics (CAC and CLV) and Churn, +1 practice case

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