Instructions

Answer questions on the basis of information given in the following case.

A few years back Mr. Arbit and Mr. Boring started an oil refinery business. Their annual earing is currently just 50,000 million rupees. They are now exploring various options to improve the business. Mr. Xanadu, a salesperson from Innovative Technology Solutions (ITS), is trying to sell a new oil refinery technology to Mr. Arbit and Mr. Boring. This technology could potentially enhance their annual earning to 150,000 million rupees within a year. But they have to make one - time investment of 100,000 million rupees to implement the technology. If the technology is not successful, the investment would be lost. Mr. Arbit and Mr. Boring are discussing about possible risks of the investment.

Question 1

Mr. Arbit is enthusiastic about this investment idea but Mr. Boring is a little sceptical. This impasse makes them approach a consultant. The consultant makes some observations. Which of the following observations, made by the consultant, might reduce Mr. Arbit’s enthusiasm for the new investment idea?

Solution

Options B and C increase the enthusiasm. Options D and E neither increases nor decrease the enthusiasm. Among the given options, option A is the appropriate one. Option A to some extent will decrease the enthusiasm of Mr. Arbit.

The answer is option A.

Question 2

In order to sell the technology to Mr. Arbit and Mr. Boring, Mr. Xanadu is thinking of five possible sales pitches. Which of the following sales pitches would reduce uncertainties the most for Mr. Arbit and Mr. Boring?

Solution

Options A, B, and E doesn't clear the possibility of technological failure. Option C states that the chances of success are high, and option D states that the team is working, but we are not sure if it is a success. Therefore, option C is the appropriate one.

The answer is option C.

Question 3

Mr. Arbit and Mr. Boring did not invest in the new technology, but the new technology is a big success. Repentant, they are now estimating the additional amount they would have earned ( i.e. forgone earnings) had they invested in the new technology. However, the two owners differed on expected lifespan of the new technology. Mr. Arbit expected lifespan to be 5 years, whereas, Mr. Boring expected it to be 2 years. After the technology gets out - dated, the earnings from the business would drop back to 50,000 million rupees. What would be the difference between two expected foregone earnings after 5 years of the technology investment, if yearly earnings are deposited in a bank @10%, compounded annually?

Note: Forgone Earnings = (Earnings from business with new technology) - (Earnings from business without new technology)

Solution

As the earnings from business without new technology will be same in both the cases, calculating the difference of earnings from business with new technology will be the answer.

Difference in forgone earnings = $$1,50,000\left(\left(1.1\right)^4+\left(1.1\right)^3+\left(1.1\right)^2+\left(1.1\right)^1+1\right)-50,000\left(\left(1.1\right)^2+\left(1.1\right)+1\right)-1,50,000\left(\left(1.1\right)^4+\left(1.1\right)^3\right)$$

= 331000

The answer is option B.

Instructions

Answer questions on the basis of information given in the following case.

Mohan’s was a popular fast - food joint at Connaught Place, Delhi. Initially Mohan handled his business alone. His sons, Ram and Kishan, joined the business after graduation from college. Ram was entrepreneurial in nature. Subsequently, another branch of Mohan’s was opened in Panipat. Mohan had chosen Ram to head the Panipat branch. Though Ram increased sales in short time, he had stopped using premium quality organic vegetables, the speciality of Mohan’s. Mohan and Kishan were not happy with his way of doing business.

Now, the foremost challenge for Mohan was to sort out this issue with Ram. Mohan knew that replacing Ram with Kishan was difficult as Kishan did not want to leave Delhi. However, giving a freehand to Ram might have long term negative consequences. Mohan was confused about the future of course of actions.

Question 4

Mohan sought the help of five consultants, who give the following opinions:
I. Organic vegetables might be a big success at Connaught place but awareness about organic vegetables is low among Panipat customers.
II. The Connaught place model can be implemented in Panipat provided the business is prepared to face the consequences.
III. Many high end restaurants in Panipat use organic vegetables. So, using organic vegetables will not be a differentiating factor.
IV. Selling prices of their dishes in Panipat are significantly lower. Using organic vegetables will bring down profits.
V. Premium quality organic vegetables are not easily available in Panipat.

Which of the following set of options would support Ram’s argument of not using organic vegetables?

Solution

Statement I mentions that the awareness about organic vegetables is low in Panipat. Therefore, this supports Ram's argument. Statement II doesn't mention anything about Ram not using premium quality organic vegetables. Statements III, IV and V support Ram's argument for not using organic vegetables.

The answer is option C.

Question 5

Mohan sought feedback from a few of his businessmen friends, who were familiar with both the branches. Here is what they said:
- Businessman 1 : Customers of Connaught place and Panipat are very different.
- Businessman 2 : Customers in Panipat are extremely happy with Ram’s behaviour.
- Businessman 3 : Panipat branch does not use the same quality of ingredients but maintains good hygiene and taste.
- Businessman 4 : Who knows, tomorrow the customers of Panipat might also appreciate what Connaught place customers appreciate today!

If Mohan thinks all these are valid concerns, which of the following actions would be best for the business?

Solution

Since the customers of Panipat are happy with Ram's behaviour, replacing Ram with Kishan will not be a very good idea.

Also, if the hypothesis of Businessman 4 in future somehow becomes a reality, Mohan cannot give Ram full control over the branch.

Since option D aptly captures these concerns and opportunities, it is the correct option.

Question 6

After discussing with a few customers, Mohan realised that compromising on the quality of ingredients at Panipat branch may not be good idea but at the same time he also realised that Panipat branch had grown fast. He was contemplating following five actions. Which of the following actions would be the best for the future of his business?

Solution

Mohan realised that compromising the quality of ingredients at the Panipat branch may not be a good idea. Instead of sending a new person or closing the Panipat branch, Mohan himself is the better option to look after the Panipat branch.
The answer is option B.