lOMoARcPSD|39164050 24 Dinosaur Medium BCG - yes Accounting and Finance (University of Lincoln) Scan to open on Studocu Studocu is not sponsored or endorsed by any college or university Downloaded by Nikul AS (nik@live.com) lOMoARcPSD|39164050 Amazonian dinosaur 1st round interview Downloaded by Nikul AS (nik@live.com) lOMoARcPSD|39164050 Prompt - Part 1 • Vale is a Brazilian multinational corporation engaged in metals and mining, being the largest producer of iron ore and nickel in the world • The company has contracted a project at the BCG office in Sao Paulo to find out what it can do with it 1 Downloaded by Nikul AS (nik@live.com) Copyright © 2020 by Boston Consulting Group. All rights reserved. • A few weeks ago, Vale won a public tender to exploit a mine in the province of Manaus, in the Brazilian Amazon, and during the exploratory stage, a team of engineers discovered a dinosaur lOMoARcPSD|39164050 Guide - Provide only if requested • The dinosaur is an alive male Tyrannosaurus rex 13 meters long • He is young and we believe he can still live for the next 100 years • His veterinary expenses are negligible and he is quite calm, does not seem to be aggressive with humans • For now, his discovery has been kept strictly confidential and no one has bid for it • There is no current legislation that prohibits its sale or commercial exploitation • There is no known female and it seems to be able to live with little surface 2 Downloaded by Nikul AS (nik@live.com) Copyright © 2020 by Boston Consulting Group. All rights reserved. • It eats a lot of grass daily but its cost is negligible lOMoARcPSD|39164050 Suggested approach - Part 1 Since it is a highly disruptive business, the candidate must focus more on possible alternatives than developing a conventional framework: at least should mention Vale has 3 key options: • Exploit the dinosaur by itself Æ Bad idea for not being the company's core business • Rent its use for periods of time Æ Feasible but with associated risks • Sell it to the highest bidder Æ Possibly the best scenario with the information to date • To think about who would be the main potential clients and uses for the dinosaur • To think about conducting a profitability study with its associated revenue and expenses The candidate himself should identify the sale as a less risky operation Downloaded by Nikul AS (nik@live.com) 3 Copyright © 2020 by Boston Consulting Group. All rights reserved. Regardless of the option chosen by the client, the candidate should propose: lOMoARcPSD|39164050 Suggested approach - Part 1 • Candidate could think of potential risks: – Possible new legislation to protect it as an animal in danger of extinction, becoming its commercialization forbidden – That the animal catches a cold or some kind of illness and dies – That by physical considerations the dinosaur cannot leave its natural habitat in terms of vegetation, temperature, humidity, etc. – Etc. 4 Downloaded by Nikul AS (nik@live.com) Copyright © 2020 by Boston Consulting Group. All rights reserved. – That public opinion turns against Vale and its stock market capitalization is affected lOMoARcPSD|39164050 Prompt - Part 2 5 Downloaded by Nikul AS (nik@live.com) Copyright © 2020 by Boston Consulting Group. All rights reserved. • Who do you think would be the potential buyers of this animal? lOMoARcPSD|39164050 Suggested approach - Part 2 • Entertainment purposes – Zoo – Circus – Theme park – Film producer – To fight with other animals – Copyright for merchandising – As a pet for a billionaire (e.g. Pablo Escobar) • Non-entertainment purposes ¾ Public Companies – Conservation or investigation center ¾ Private Companies – Wildlife conservation NGO – Pharmaceutical – Research laboratory – For food or fur clothing Downloaded by Nikul AS (nik@live.com) 6 Copyright © 2020 by Boston Consulting Group. All rights reserved. Candidate could think of: lOMoARcPSD|39164050 Prompt - Part 3 • A round of consultations has been held and Walt Disney seems to be the most interested bidder, to take the dinosaur to its amusement park in Los Angeles 7 Downloaded by Nikul AS (nik@live.com) Copyright © 2020 by Boston Consulting Group. All rights reserved. • How much do you think Walt Disney would be willing to pay for it? lOMoARcPSD|39164050 Suggested approach - Part 3 Candidate should think of some way to value of it, being the most obvious to calculate the incremental margin that the dinosaur would generate to the park with its existence: • At this point, if not already asked, candidate should know what is the animal's lifespan to discount the cash flows • On the other hand, candidate should also consider what is the maximum capacity of the park, as it would possibly overflow with people during the first years of operation with the dinosaur 8 Downloaded by Nikul AS (nik@live.com) Copyright © 2020 by Boston Consulting Group. All rights reserved. • To do this, the candidate should know the current annual revenue and then estimate how many more people would go and what price they would pay for the entrance lOMoARcPSD|39164050 Prompt - Part 4 9 Downloaded by Nikul AS (nik@live.com) Copyright © 2020 by Boston Consulting Group. All rights reserved. • Estimate how many people visited Walt Disney Park in Los Angeles last year lOMoARcPSD|39164050 Suggested approach - Part 4 There are multiple options to estimate the number, one of the possible ones would be to calculate the number of passenger arrivals to Los Angeles: • 10% of passengers come with other means of transportation (train, car, bus, etc.) • 50% of passengers are tourists • 8 out of 10 tourists go to Walt Disney • 30 x 200 x 20 x 365 = ~ 44 M passengers • 44 x 1,1 x 0,5 x 0,8 = ~ 20 M people Los Angeles Airport received last year 43,8 million passengers, and Walt Disney LA park sold 19,5 million entrance tickets Downloaded by Nikul AS (nik@live.com) 10 Copyright © 2020 by Boston Consulting Group. All rights reserved. • Landings every 2 minutes – 30 planes per hour • Average of 200 passengers per plane • Operation of 20h a day at the airport – 365 days a year open lOMoARcPSD|39164050 Prompt - Part 5 11 Downloaded by Nikul AS (nik@live.com) Copyright © 2020 by Boston Consulting Group. All rights reserved. • Estimate how much Walt Disney would be willing to pay at most for the dinosaur lOMoARcPSD|39164050 Guide - Provide only if requested • Current price of the entrance is 20 USD • Maximum capacity of the theme park is 30M people per year Candidate should be surprised with the 60M people data point, since it represents a higher figure than all the arrivals from the international airport, he should ask himself if there would be capacity for such at the park Downloaded by Nikul AS (nik@live.com) 12 Copyright © 2020 by Boston Consulting Group. All rights reserved. • Price of ticket could rise up to 40 USD and still attract 60M people per year to the park lOMoARcPSD|39164050 Suggested approach - Part 5 • Current revenue = 20 M x 20 USD = 400 M USD per yer • New revenue = 30 M x 40 USD = 1.200 M USD per year • Incremental margin assuming no incremental costs = 800 M USD per year • On the other hand, it would be expected to value the dinosaur applying a high discount rate considering the risks associated with this particular project (e.g. 50%) 13 Downloaded by Nikul AS (nik@live.com) Copyright © 2020 by Boston Consulting Group. All rights reserved. • Candidate should notice it is a perpetuity due to the dinosaurs lifespan (candidate is not expected to have financial background, so it is correct to ask for the formula) lOMoARcPSD|39164050 Suggested approach - Part 5 14 Downloaded by Nikul AS (nik@live.com) Copyright © 2020 by Boston Consulting Group. All rights reserved. 800 / 0,5 = 1,600 M USD lOMoARcPSD|39164050 Prompt - Part 6 15 Downloaded by Nikul AS (nik@live.com) Copyright © 2020 by Boston Consulting Group. All rights reserved. • What should our client do? lOMoARcPSD|39164050 Suggested approach - Part 6 • Best option is to sell the dinosaur due to the lack of core skills to exploit it and if possible ASAP to avoid any legal consequences • Moreover, considering it could attract 60 M people per year, but the maximum capacity is at 30 M people, it would be wise to increase even more the entrance ticket from 40 USD 16 Downloaded by Nikul AS (nik@live.com) Copyright © 2020 by Boston Consulting Group. All rights reserved. • Walt Disney appears to be the highest bidder and could possibly pay up to 1,600 M USD for it, assuming a recurrent 800 M USD per year margin increment at a 50% discount rate perpetuity lOMoARcPSD|39164050 The materials contained in this presentation are designed for the sole use by the board of directors or senior management of the Client and solely for the limited purposes described in the presentation. The materials shall not be copied or given to any person or entity other than the Client (“Third Party”) without the prior written consent of BCG. These materials serve only as the focus for discussion; they are incomplete without the accompanying oral commentary and may not be relied on as a stand-alone document. Further, Third Parties may not, and it is unreasonable for any Third Party to, rely on these materials for any purpose whatsoever. 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