1

Copyright 2012 by Steve Campbell

All rights reserved,
including reproduction in whole or in part in any form.
www.caseinterviewhq.com

Preface
When I applied to McKinsey, there was little to no information on the
McKinsey Problem Solving Test or PST. After I received my invite, I
downloaded the practice test on mckinsey.com. I skimmed the
instructions and the first questions, thinking: This looks easy enough.

Needless to say I answered less than half the questions correctly, which
scared me to death: I really wanted to ace the PST. After frantically
searching the internet the conclusion was clear: there was preciously
little info on the PST online. I ended up practicing like crazy with the
little material I could find and eventually, I aced the real PST.

It is my goal to help you ace the PST. In this guide youll find a
completely updated version of the chapter on written cases from
Cracking the Case. More importantly, it is followed by a complete
practice PST: three cases and 26 questions to be solved in 60 minutes.
Just like the real Problem Solving Test.
Good luck!
- Steve

Table of contents
The McKinsey PST!.............................................................................................6
Practice PST!........................................................................................................11
Appendix A:!........................................................................................................28
Solutions!..............................................................................................................28
MallHark!.....................................................................................................................28
IndiAir!.........................................................................................................................31
BePal!...........................................................................................................................34

Special Oer:!.......................................................................................................37
Acknowledgements!.............................................................................................38

The McKinsey PST

The McKinsey Problem Solving Test is a written case. Written cases are a
recent development in the management consulting industry and
McKinsey was the first to use them to efficiently assess whether a
candidate should be invited to live cases or not. Instead of wasting
precious hours with hopeless candidates, they started using the
McKinsey Problem Solving Test (PST) as a pre-selection method.

McKinsey Problem Solving Test

Basically, the PST is a case interview on paper, with multiple-choice
answers. Though it features some quantitative questions (no calculator
allowed), it is designed to be solvable by both Physics and Art majors.
To increase your stress levels, theres also a strict time limit: youll only
get 60 minutes to solve all 26 questions, which is a very short time
considering the amount of text and charts thrown at you.

Basic PST Structure

The PST consists of 26 questions, divided into four mini-cases. Every
mini-case has an introduction, in which the company (anything from a
fish restaurant to a personal electronics manufacturer) and its problems
are introduced. Often with some numerical information and possibly
with a quote from the CEO or director.
The introduction is followed by the first series of questions, after which
a new piece of information (a chart, a new problem) is introduced. This
new information is then followed by another set of questions and then
its on to the next mini-case.
Below, we will share the essential tips on what you should do before and
during the PST.
Before the PST
If you know you are going to apply to McKinsey, start practicing now. Do
not wait for that invitation, because then you will only have a few days
to prepare for both the PST and any other interview rounds. Read this
guide and make the included practice test, as well as the test found on
McKinsey.com. Pay special attention to your mistakes, use the answer
guide to determine why you made that specific error.

Math
Since you are not allowed to bring a calculator, you have to do every
calculation in your head or on paper. If you are like most of us, the last
time you calculated 17 x 55 in your head is approximately 10 years ago,
so its time to dust off those math skills. Calculating in your head is a
skill, so you can improve it through practice: it just takes time. It is time
well spent however, since math is also an important part of the next
hurdle in the selection process: the case interview.
There are plenty of ways to train math. There are countless smartphone
apps, websites and computer programs that you can use to practice.
You should focus on a few key areas:
Percentages
Double digit multiplication (for example, 24 x 14)
Large numbers with a lot of zeroes
Though exact math is very important during live cases, the questions in
the PST will typically require the (estimation) of percentages and large
numbers. Since its a multiple-choice test, exact answers are often not
required to answer the question correctly. Focus specifically on training
calculation with large numbers: you are bound to forget a zero
somewhere.
Business Mindset
This might sound strange for all Finance/Economics/Business people,
but some studies are a better preparation for consulting than others. If
you do not have a business background, it can help in your preparation
to read up on business problems by reading magazines and websites
such as The Economist, BusinessWeek and BusinessInsider.
You then get a little more attuned to the concepts and terminology used
in the consulting world. You then recognize more automatically that
Profit = Revenue - Cost, with
Revenue = Quantity of Goods Sold x Price.
That cost can be split up in fixed and variable cost and that you dont
waste time thinking about what depreciation exactly meant. Remember:
you only have two minutes per question.

Dont fret, however: the PST is designed to be made by everyone and

features a cut-off score, not a bell-curve. You are only competing against
yourselves and thus there is only one thing you can do: your best.

During the PST

You can improve your performance through practice, but there are also
things you can do during the PST to improve your score and save some
time. There are only 26 questions and one wrong answer can make a the
difference.
Read carefully
The single most important thing you will have to do is to read carefully.
But youre also on a strict time limit, so we propose two possible
strategies:
I.
Skim and underline
When youre reading the introduction or any piece of data: quickly scan
through it while underlining or circling important facts, such as what the
revenues currently are and what the goals of the client are. You then
move on to the questions and use the underlined facts as visual anchor
points to quickly find the answer.
II.

Read the question first

Not everything is relevant and the PST will drown you in data if you try
to understand all the information and every chart and graph completely.
You could therefore read the questions first and then start to read the
data or start interpreting the charts, with the questions in the back of
your mind.
We prefer the first method, though you should not get stuck trying to
interpret a chart that in the end is not relevant. Always read the question
and every multiple choice answer carefully. The goal is to select the best
answer: which means that multiple answers may be right, but one is
better than the others. Subtle phrasing differences could set you off on
the wrong foot, so dont answer the question until you understand it.
Not everything is relevant
We already mentioned it above, but since it is so important we will
repeat it here: not everything is relevant. You dont need to fully
understand every chart in order to answer the questions. Focus on the

bits and pieces of information necessary to answer the question

successfully.
Consultants are buried in mountains of company data on a daily basis.
Paying attention only to what is important is a necessary skill, tested by
the PST. In the last version of the PST, there was actually a chart
included that was not used in any question at all, just there to distract
you. So pay attention to what is relevant and what is not!
Eliminate
A typical multiple-choice strategy: the elimination of plain wrong
answers. Usually, you can eliminate one or even two wrong answers,
increasing the chance on a right answer if you need to guess (there is
only one best answer per question).
Estimate
Its not always required to calculate the precise answer to a question, so
you can often get away with estimation. If only one of the multiple
choice answers is in the range you estimated, then you can safely select
that answer as the right one. No need to calculate the exact number and
waste your precious time.
Fill in all answers
Any unanswered questions are counted as wrong and there is no extra
penalty for giving wrong answers. So if youre running out of time, just
guess and pray youve selected at least a few right answers.
Final Words
In the end, the goal is to get you through the PST and into the live
interview rounds. With the tips and tricks of this guide in the back of
your mind you know what to expect, ready to save some of those
precious minutes, which you can invest in revisiting that difficult
question halfway the test.
The PST is challenging, but fun. You are not being compared to the
others, they are not the competition. Its just you beating the cut-off
score. Look at it as a game: you are going for the high score.

10

Practice PST
This practice test has been developed to provide a sample of the actual
McKinsey Problem Solving Test used for selection purposes. This test
assesses your ability to solve business problems using deductive,
inductive, and quantitative reasoning. This practice test contains a total
of 26 questions, just like the actual test. You should complete the test
within 60 minutes.
You will be presented with a scenario based on an actual McKinsey client
case. Information related to the scenario will be shown in text, tables,
and exhibits. The questions ask you to find the most appropriate answer
to the problem as described using only the information presented. You
should select one and only one answer to any question.
While completing this practice test, do not use any electronic devices
(e.g., calculator, computer) when performing calculations to answer the
questions. Electronic devices will not be permitted to be used during the
actual test administration. Only scratch paper will be provided to
perform computations. However, notes on the scratch paper will not be
used in any way in determining your final test scores. Your final test
score will be based on the number of questions you answer correctly.
The practice scenarios are located on the following pages in addition to
26 multiple-choice questions. Only consider information contained
within the scenario when determining your answer. Considering all
information presented within the scenario is critical to answering
questions correctly.
After you have completed the test, score your answers using the answer
key located in the appendix. Add the number of correct answers to
determine your final total score.

11

MallHark Cards
MallHark is the industry leader in greeting cards and has been in the
industry since the beginning of the twentieth century. It has grown to be
a very diversified company, and while the main source of income is still
greeting cards MallHark also owns retail stores, a television channel and
various business-to-business service providers. It currently employs
more than 11,000 employees to cater its home market: the United
States.
MallHarks greeting cards are high quality and are sold at premium
prices, but it still manages to hold a significant revenue market share
over competitors Cards4U and Snail Mail:

Gree$ng'Card'Market'Shares'2012'
25%$

40%$

MallHark$
Cards4U$

15%$

Snail$Mail$

20%$

Others$

Both these competitors sell lower quality cards with less features (such
as sound effects and embossing) and without the famous cartoons and
movies that MallHark has licensed. These licensed cards have been a
unique selling point for MallHark over the years. A few examples of
these licensors can be found in the table below:

MallHark Licensors
20th Century Fox

MGM

Beatrix Potter

National Basketball Association

Cartoon Network

National Football League

12

MallHark Licensors
DC Comics

National Hockey League

Dr. Seuss

Paws, Inc.

DreamWorks Animation

Peanuts

Ford Motor Company

Precious Moments, Inc.

General Motors

Rankin/Bass

Hanna Barbera

The Hershey Company

Harley-Davidson

The Simpsons

Looney Tunes

The Walt Disney Company

Lucasfilm

Marvel Comics

We have been approached by the CEO of MallHark to investigate their

profits, as it has seen a substantial hit, declining 30% in the last three
years. There is a investor conference call coming up, and the CEO has to
announce for the 13th quarter in a row that profits have fallen. Some
shareholders are growing impatient and demand the company splits
itself up. To turn things around, the CEO believes MallHark should
diversify even further and he is considering acquiring a cable company.

I.
What does the CEO of MallHark want?
A. Guarantee the continued existence of MallHark.
B. Reassure investors that they should not worry about the future.
C. Increase the profits of MallHark.
D. Increase the revenue of the greeting card business unit.

II.
What of the following actions will certainly help the CEO to achieve his
goals?
A. Develop a completely new product.
B. Acquire a national cable company.
C. Lower the wages of current employees.
D. Enter a new market.

13

III.
What can not be concluded from figure 1?
A. Other competitors and Snail Mail combined equal MallHarks market
share
B. MallHarks market share has remained at 40%.
C. Cards4Us market share is approximately 2 times smaller than
MallHarks.
D. All of the above can be concluded
Our analysis shows that lower revenue from the greeting card business
unit is responsible for the profit decline. While revenues of this business
unit were $720 million in 2009, they have shrunk to $480 million in
2012. We also found that the market shares of MallHark and its
competitors remained the same throughout those years.
IV.
Based on the above information, what can you conclude about the
competitors of MallHark?
A. On average, their revenue has grown.
B. On average, their revenue has shrunk.
C. On average, their revenue has remained the same.
D. You cannot conclude this based on the above information.

V.
Based on the information in this case, which of the following statements
is true?
A. Cards4U revenue in 2009 was less than $300 million.
B. Total market size in 2012 was lower than $1.2 billion.
C. All the small other competitors combined had a lower revenue in
2012 than Snail Mail in 2009.
D. SnailMail lost more than $70 million in revenue in this three-year
period.
After careful analysis of MallHark and the greeting card business, our
team came to the conclusion that new opportunities lie in the e-card
business. Here we can leverage the companys expertise in designing
beautiful cards, shifting our reliance from greeting cards to the rapidly
growing e-card market.

14

We have investigated all competitors in the e-card business and

collected data on their revenues in 2010 and 2011, which can be found
in the table below.

Revenue 2010 (in

million $)

Revenue 2011 (in

million $)

CardOnline

14

21

Your eCard

Snailmail.com

SendCards

14

17

eCardHQ

14

16

eSend

-*

*: eSend was acquired by CardOnline in 2011

VI.
Which company experienced the second highest revenue growth in
dollars and which the second highest growth rate compared to 2010?
A. SendCards both in dollars and growth rate.
B. CardOnline both in dollars and growth rate.
C. SendCards in dollars, eCardHQ in growth rate.
D. SendCards in dollars, Snailmail.com in growth rate.

VII.
Which company will be the largest in 2015, if growth rates and outside
factors remain the same?
A. eCardHQ
B. CardOnline
C. SendCards
D. Snailmail.com

15

VIII.
Which of the following is true?
A. eCardHQs market share in 2010 was 21%
B. eSends 2010 revenue is less than 30% of SendCards 2010 revenue.
C. CardOnlines market share grew from less than 25% to more than
30%.
D. Total market size grew $9 million from 2010 to 2011.

IX.
The CEO of MallHark still sees diversification into cable television as the
best solution to his problem and doubts the results of our analysis.
Which of the following facts, assuming they were found to be true,
would shed serious doubts on our recommendation to enter the e-card
business?

A. The fact that our analysis was based only on the larger players, who
have a combined market share of 78%.
B. A report by stock analysts indicating the stock of most cabletelevision companies is severely underpriced.
C. The fact that the 2011 revenue of all companies was based on the
results from their first three quarters and extrapolated for the fourth
with a 10% error margin.
D. The fact that none of the e-card companies studied made any profit.
One of the problems that the MallHark CEO sees in entering the e-card
business is that he believes people will always enjoy receiving a physical
card more than just an e-card. Still, he sees the benefits of the high
degree of personalization that an e-card offers.
MallHark prints its own cards, in large machines that print runs of
10,000 cards at a time. Smaller volumes are not possible because of
cost constraints. Two companies, E-CardPrint (ECB) and PrintNow (PN),
do offer machines that allow cost effective e-card printing. This would
combine the personalization options of the e-card with the look and feel
of a real card. The CEO of MallHark now considers buying one of these
machines and asked us to investigate whether this is a good idea.
Purchase and operating costs of the two machines are listed below.
Different from PN, ECB only offers to lease the machine, including a fullservice repair contract.

16

PN

ECB

Purchase Price

$550,000

$100.000*

Cost per Card

$0,20

$0,05

Write Off Period

10 years

**

*: Yearly lease. **: Old machines are replaced if necessary as

part of the lease contract.
X.
The CEO of MallHark expects to sell 250.000 customized cards. Which
of the machines is a better choice, considering the information above?
A. The ECB machine, with a margin of $7,500 a year.
B. The PN machine, with a margin of $7,500 a year.
C. The ECB machine, with a margin of $55,000.
D. The PN machine, with a margin of $55,000.
XI.
Assuming that the volume of the e-card printing market will grow by
30% next year and MallHarks market share remains the same, which of
the following pieces of information would be the most important in
determining which machine to buy?
A. PN machines can be used for 15 years, but with a $0.25 cost per card
for the last 5 years.
B. The ECB machine has a 800 cards per day maximum.
C. The PN machine has a 1000 cards per day maximum
D. ECB machines break down once per 5 years, on average.

17

IndiAir
Indiair is Indias largest air line company, born in 2007 when the Indian
number 2 and 3 airlines decided to join forces to battle both national
and international competition. Both these airlines had a traditional focus
on the business customer and both serviced international hubs. Not only
were the involved companies pleased with the merger, analysts
predicted that the increased scale would lead to a cost reduction in both
variable costs such as jet-fuel and staff, but also in fixed costs such as
the largest assets of both airlines: the jets themselves. Cost synergies of
up to 20% were expected, which meant that the two companies
combined would have 20% less costs than two independent firms.
The other reason for a merger was the better competitive position vis-avis MumbAir, now the number two airline in India, as well as versus the
increasing international competition. In the last years, both American
Airlines and British Air have stepped up their international ambitions
and increased their presence in India.

2012$Revenue$per$airline,$in$million$dollars$
King"Air"
Air"Chennai"
Fly"Indian"
MumbAir"
IndiAir"
0"

5"

10"

15"

20"

25"

30"

35"

40"

45"

The CEO of IndiAir thinks the biggest competitive pressure will come
from various low cost airlines however, of which a multitude have
sprung up in the recent years. These no-frills airlines offer cheap flights
on various high frequency flight routes. Planes go back and forth with a
minimum downtime and even less service to travelers, all to keep costs
low. The average Indian low cost airline is very small, servicing only two
to three routes at this moment.

18

The CEO of IndiAir is worried that these low cost competitors will hurt
his business model, and asked us for advice.
Below, you will find the costs and revenues of IndiAir over the years
2009 to 2012.

IndiAir'Cost'and'Revenue,'200952012'
60#

40#

20#

49#

48#

44#

40#

2009#

2010#

2011#

2012#

&46#

&45#

&42#

0#

&20#
&51#
&40#

Revenue#

&60#

Costs#

I
Did IndiAir make a profit over the period 2009-2012?
A. Yes, IndiAir made a profit over the period 2009-2012.
B. No, IndiAir suffered losses over the period 2009-2012.
C. No, IndiAir broke even over the period 2009-2012.
D. There is not enough information to answer this question.
Our team has analyzed the current cost structure of IndiAir and
constructed the following graph:

19

IndiAir'Cost'Distribu/on'
Sta$

Fuel$

Planes$

10%$
15%$

Overhead$

Other$

25%$

30%$

20%$

II.
Which of the following developments could impact IndiAir costs the
most?
A. An increase of overhead costs by 30%.
B. Other costs increasing by $4 million.
C. An increase in fuel prices by 20%.
D. Wage cuts of 10%.

III.
Will IndiAir reach the cost synergies expected by analysts?
A. Yes, IndiAir already reached expected synergies.
B. No, IndiAir will not reach expected synergies.
C. No, but IndiAir will reach expected synergies next year if the trend
continues.
D. There is not enough information to answer this question.
As you can see in Table 2, IndiAir revenue has fallen over the years and
the CEO is wondering how this could have happened. He suspects that
the rapid growth of low cost carriers are the main cause.
IV.
You and your team are to analyze this situation. Rank the following
pieces of information in order of importance:

20

1. Low cost airline traffic has grown with 20% per year the last 3 years.
2. On average, income has grown with 13% in the last 5 years.
3. IndiAir salaries increased with 10% in the past year.
4. The size of the business-class market has grown with 12% each year.
With the most important piece of information first, and the least
important piece of information last:
A. 1, 4, 2, 3.
B. 3, 1, 4, 2.
C. 4, 1, 2, 3.
D. 1, 2, 4, 3.
The CEO thinks that instead of competing on price, he should compete
on service. Instead of mimicking the low cost airlines focusing on the
price sensitive lower end of the market with average ticket values of $
120, IndiAir should focus on providing excellent service against price
premiums for the higher end of the market, with average ticket values of
$600.

V.
Which of the following pieces of information would, assuming they were
true, not support such a decision?
A. After re-aligning IndiAirs organizational structure and fleet setup, its
fixed and variable costs will be 13% higher than the average low cost
airliner.
B. Over 80% of these high end travelers are business travelers, who
book most of their flights through special agencies currently not
booking though IndiAir because of software misalignment.
C. Mumbair has recently launched a low cost airline subsidiary and
other competitors, including KingAir, are considering the same.
D. Developing the service and quality levels required by the upper end of
the market is cost prohibitive.
Contrary to the CEOs expectations, your team finds that IndiAirs
revenue is mainly influenced by increased competition in the higher end
of the market. The increasing competition of large international players
especially is hurting sales: because of their larger size and
corresponding scale benefits, these international competitors can offer
high-end flights cheaper than IndiAir.

21

VI.
Which of the following would not help IndiAir become more competitive
versus these international competitors?
A. Enter into a purchase alliance with MumbAir, to purchase new planes
and fuel together.
B. Legislative policies prohibiting international firms to operate in the
Indian market without a local partner.
C. A sudden oil-price increase, sparked by unrest in the Middle East.
D. A national minimum wage increase to adjust for rising inflation.
One way to increase IndiAirs profits would be to increase the price of its
tickets by 10%. To compensate for this price increase, the airline would
also increase its service by offering free newspapers, more free snacks
and increasing the quality of onboard food. This would increase costs by
4%.
VII.
A survey conducted under 5,000 IndiAir customers indicated that 35% of
these customers would no longer choose IndiAir if it increased prices.,
even if it increased quality Assume that the average ticket costs $100,
should IndiAir increase prices?
A. Yes, it should: this would increase both revenue and profits.
B. Yes, it should: this would increase profits, even though it hurts
revenue.
C. No, it should not: this would both hurt revenues and profits.
D. You do not have enough information to answer this question.
VIII.
If true, which of the following facts on the survey would severely
discredit the results of the survey?
A. Most businessmen were unwilling to take the 10-page survey because
they did not want to waste their time.
B. The surveyed customers came from different cities and regions of
India and included some international customers.
C. Originally, 7,000 customers were surveyed, but the data of 2,000
surveys was lost in a fire.
D. All surveyed customers received a small monetary reward as a
compensation for their time.

22

BePal
Bepal is a pallet manufacturer located in Belarus, in the former Soviet
Union. It was established in 1993 and operates two divisions: a sawmill
and a pallet production line (since 2000). It buys raw wood from a local
woodcutting company and processes the logs into wooden planks at its
sawmill. These planks are sold to furniture factories and used by its
pallet division, which buys them for market price.
Pallets are used in transportation and can be made of wood, aluminum
and plastic. More than 90% of pallets are made out of wood, a natural
material that requires extra treatment to make it less prone to fungal
growth and increase its resistance to weather conditions. BePals pallets
are high quality and carry the EPAL (European Pallet Organization)
quality mark, which include extra norms to increase safety and
durability. The most used EPAL pallet is the EPAL1, with the dimensions
shown below.

BePals Pallet customers are mainly European logistics companies that

ship to Russia: Belarus is on the main trade route between the port of
Rotterdam and Moscow and has a bustling wood manufacturing
industry. Lately, BePal has seen an increase in orders from Russian
customers.
While BePals pallet business was on the rise, its sawmill business was
hurting. BePals CEO has contacted us to advise him on the situation: he
wants to make the sawmill division profitable again by reducing cost.

23

You are on the consulting team we sent to Belarus to help him achieve
his goals.
Below, youll find a chart with BePals total revenue from 2005-2010:

BePal Revenue 2005-2010 in million $

30
25
20
15
10
5
0

2005

2006

2007

2008

Sawmill

2009

2010

Pallets

I.
As you can see in the chart above, revenue from the Sawmill has
decreased in the years 2005-2010. Which of the following statements
about BePals revenue is correct?
A. Revenue for BePals Sawmill has always been in decline.
B. BePals Sawmill saw its revenue more than halved in this period.
C. In 2007, revenue from the Sawmill was lower than from Pallets
D. The decline in Sawmill revenue is caused by a declining demand for
processed wood.
II.
Which of the following information would help you answer the CEOs
question?
1.Cost structure of the Pallet division.
2.Market analysis on customers and competitors in the
processed wood market.

24

3.Current Sawmill revenue and profit.

4.Analysis on revenue opportunities in the processed wood
market.
5.Cost structure of the Sawmill division.
You would need at least:
A. 1 & 5.
B. 2, 3 & 5.
C. 2, 3 & 4.
D. 3 & 5.
III.
What would definitely not help the CEO in attaining his goals?
A. Lay off a part of the workforce.
B. Reduce inventory of finished goods.
C. Lower the price of his products.
D. Renegotiate prices with suppliers.
The director of the Sawmill division visits your team and tells you that
there are actually two sawmills: A & B. He only has data on sawmill A,
the biggest sawmill of BePal, and supplies you with revenue and
processed wood volume of this sawmill. You compare his info to the
data you received from the Pallets division:
Year
2005
2006
2007
2008
2009
2010

Sawmill A Revenue
(in million $)
15
13
10
10
7
5

Sawmill A
Volume
500000
450000
370000
380000
280000
200000

Pallets Revenue
(in million $)
4
6
9
11
12
11

Pallets
Volume
400000
600000
900000
1100000
1200000
1100000

IV.
What cant be concluded from this table?
A. Prices of Sawmill As processed wood dropped more than 15% in this
period.
B. BePals Pallets are sold for $10 a piece.
C. BePals revenue in 2005 was $19 million.
D. Pallet revenue and volume increased by 33% from 2006 to 2007.

25

Your team has identified the falling price of processed wood as one of
the main reasons for falling profits. While fixed and variable costs have
been constant over the years, prices dropped and profit margins fell.
Your team calculated that for Sawmill A, profit margins in 2009 were 17
%.
V.
What was the profit per unit for Sawmill A in 2009?
A. $ 4.25
B. $ 4.05
C. $ 3.95
D. $ 4.30
VI.
In 2010, prices remained the same, but volumes dropped. If Sawmill As
fixed costs in a given year are $ 3m, what would happen to the profit
per unit in 2010 if we also assume variable costs remain at the 2009
level?
A. They would be lower than $ 4.25
B. They would be higher than $ 4.25
C. They would be the same.
D. You cannot answer this question based on this information

Even though the Iron Curtain fell in 1990, Belarus is slow in opening its
markets and privatizing state companies. Foreign investment is on the
rise, but many companies are still (partly) state-owned. Some receive
state funding to guarantee their continued existence, while others
receive tax incentives to improve their competitive position (and some
get both). Our competitor analysis has shown that a large percentage of
sawmills in the area is state owned.
VII.
Which of the following developments could not have caused the pricedrop of processed wood?
A. Lowered VAT on products from state owned companies
B. A more restrictive woodcutting policy, requiring more trees to be left
standing in deforested areas.

26

C. Technological advancements in the woodcutting industry, reducing

the amount of wood wasted during processing by 20%.
D. A cultural shift in housing: traditionally people lived in wooden
houses in villages, now people move to the city and its concrete flats.

See Appendix A for the solutions.

27

Appendix A:
Solutions
MallHark
I.
Answer: C.
If you got this question wrong, remember this: you shouldve read this
question as the consultant hired by the CEO. Why did he hire you? He
wants to investigate why MallHarks profits went down. Saving the
company and reassuring investors are important as well, but the reason
he hired you is to investigate profits.
II.
Answer: C.
Remember the goal of the CEO: increasing profits. As you might know,
profit = revenue - cost. Answers A, B, C & D all influence either costs or
revenue, and some influence both. But which is the most certain to have
effect? Developing products, acquiring companies and entering new
markets all bring both costs and potential revenues, lowering wages is
certain to decrease costs. Even though lowering wages has its risks
(strikes, lower employee morale), it is less risky than the other options
and more certain to tip the costs/revenue balance in the right direction.
III.
Answer: B.
The figure does not include reference data from other years, thus you
cannot conclude that MallHarks market share has remained the same or
changed in the last years.
IV.
Answer: B.
If the revenue of company X shrinks, but his market share (= its % of
total market revenues) remains the same, you can conclude that the
total market revenue has shrunk as well. This alone is enough to assume
that the average revenues of others in the market have shrunk as well.

28

V
Answer: D.
We know the market shares and we know MallHark revenue in 2009 and
2012. Based on that, we can calculate the revenues of all other
competitors in both 2009 and 2012:

Company

Market Share

2012

2009

MallHark

40

480

720

Cards4U

20

240

360

Snail Mail

15

180

270

Others

25

300

450

Total

100

1200

1800

From the above table, we can conclude that A, B and C are false and only
statement D is true.
VI.
Answer: D.
See the table below for an explanation:

Revenue
2010 (in
million $)

Revenue
2011 (in
million $)

Growth in Growth in
million $
%

CardOnline

14

21

57

Your eCard

17

Snailmail.com

25

SendCards

14

18

21

eCardHQ

11

13

18

eSend

-*

*=eSend was acquired by CardOnline in 2011

The vagueness on whether you should include the acquisition or not is
deliberate: the real PST will also keep you guessing sometimes.

29

VII.
Answer: C.
Even though Snailmail.com has the highest (natural) growth grate,
Sendcards starts with a higher revenue in 2011 however and nearly the
same growth rate.
VIII.
Answer: C.
See the table with market share distributions below:

2010

2011

CardOnline

0,24

0,32

Your eCard

0,10

0,11

Snailmail.com

0,07

0,08

SendCards

0,24

0,26

eCardHQ

0,24

0,24

eSend

0,10

IX.
Answer: D.
Facts A & B both support a course of action different from our e-card
business recommendation, while C & D shed doubts on the validity of
this recommendation. Were looking for facts that would shed doubts on
our recommendation, so we should focus on C and D. Since the CEO
wants to increase profits, it would not be wise to enter a market in
which no player makes a profit.
X.
Answer: B.
To answer this question you have to compare the yearly costs of both
machines:
PN

30

The PN machine has fixed yearly write off costs of $ 550,000 / 10 = $

55,000 a year. Additionally, there are variable costs of $ 0.20 per card,
which makes 250,000 * 0.20 = $ 50,000 a year. This totals to $105,000
a year.
ECB
The ECB machine has yearly lease costs of $ 100,000 and variable costs
of $ 0.05 per card, which makes 250,000 * 0.05 = $ 12,500. This totals
to $ 112,500 a year.
XI.
Answer: B.
When market volume grows with 30% and market share remains the
same, we can calculate the new production demand for MallHark: 130% *
250,000 = 325,000 cards per year. At this volume, the ECB machine
would be cheaper than the PN machine. But with the information from
statement B, we can calculate that the maximum demand for an ECB
machine would be 365 * 800 = 290,000 cards per year. We would thus
need two ECB machines, where 325,000 cards could be printed by one
PN machine.

IndiAir
I.
Answer: B.
Profit in 2009: -2
Profit in 2010: 2
Profit in 2011: -1
Profit in 2012: -2
Total: -3, which is a loss, thus answer B is correct.
II.
Answer: B.
To answer this question, we need to calculate the absolute effects of
each development. Before we can do that, we need to calculate the
absolute costs of each cost segment.

31

Cost structure

Cost
Percentage

Absolute
Costs

Development
effect

Staff

25

10

-1

Fuel

20

1,6

Planes

30

12

Overhead

15

1,8

Other

10

Cleary, the $4 million increase in other costs will have the biggest
impact.
III.
Answer: D.
To determine cost synergies, you need the baseline: the costs of the two
companies before they were combined. We only have data from after the
merger, which means we cannot answer this question.
IV.
Answer: C
Why?
Will directly disprove the hypothesis of the CEO: if revenue of IndiAir
(with a focus on the business market) does not even remain the same
but drops while its prime market is growing with 12% per year, then
something else is wrong with IndiAir: especially because the low-cost
carriers dont compete in the business market.
Unable to disprove his/your hypothesis, you start looking for data that
supports it. Info (1) indeed supports the hypothesis that IndiAir is
feeling the pressure from the rapidly growing low-cost airlines.
Growing average income could have an indirect effect on the amount of
airline traffic in a country. The more people earn, the more they can
spend on vacation/travel. But because the effect is indirect at best, this
piece of info is not that important.

32

Costs have no relation to revenue. Least informative as to why revenue

has dropped.
V.
Answer: B.
Shows that IndiAir cannot compete effectively with low cost airlines.
With average costs 13% higher than these low cost airlines, there is no
way IndiAir can compete on price: low cost airlines can always lower
prices to a point where IndiAir makes no profit, while they do.
This software misalignment would prohibit access to 80% of the market
the CEO wants to focus on. Obviously, this doest not support focusing
on the high end market.
More competition on the low end does not influence competition on the
high end, this piece of information would support moving away from the
(now even more) competitive lower end of the market.
This piece of info indicates that there are entry barriers to the high-end
market: which means IndiAir would be safe from new competitors
entering this market. Since IndiAir is already servicing this high-end
market, we can assume it has developed these service levels already,
which means its safe from competition if it focused solely on the highend market.
VI.
Answer: D.
Increasing scale in a purchase alliance would lower costs for IndiAir,
which would make them more competitive.
Protective legislation barring international players from entry on a
market helps national players (such as IndiAir) become more
competitive.
Both national and international airlines would have to deal with these
price increases, nothing indicates IndiAir will have a competitive
advantage with higher oil prices, nor would they become less
competitive, as all players will have to deal with these developments.
Since a large percentage of our personnel is Indian, versus a relatively
low percentage in international airlines, this development could hurt our
competitiveness.
VII.
Answer: D.

33

You dont know what the price increase will do based on the information
from this survey. Why? We only know the average ticket price, not the
distribution of ticket prices. Which 35% of customers would be the most
cost sensitive? Not the high margin business class travelers. But we
dont know how many of them fly with IndiAir at which price.
Secondly, we know nothing about costs: what would happen with costs
if we lose 35% of our customers? What if we only lost low-end
customers? What if we only lost high-end customers? We just do not
have enough information to answer this question.
VIII.
Answer: A.
If a large percentage of businessmen refused to partake in the survey,
then the survey is no longer an accurate representation of the wishes of
IndiAir customers. Conclusions based off it will be based on what
economy class customers would want, which might not be what is best
for IndiAir.
This does not influence the quality of the survey, as long as the
customers surveyed more or less represent the average IndiAir
customer. We have no reason to believe that is does not do that: IndiAir
services a large part of India and international customers as well.
Unless these 2,000 surveys were from a specific customer segment (for
which we have no indication), the 5,000 remaining surveys should give
an accurate representation of the average IndiAir customer: the quality
of the survey is only slightly lower.
Since everybody received the same award, there is no reason to assume
that giving a small reward would influence the results in any way. Even if
this would slightly skew the distribution of customers (since rich
customers might be less tempted than poor customers), the fact in (A)
skews the distribution far more seriously.

BePal
I.
Answer: B. Revenue dropped from just under $ 20 million to just above
$ 5 million. A is false, since revenue was flat between 2007 and 2008. C
is wrong, as can be seen in the chart. D is also wrong: nothing points
toward it and there is no way you can support that answer.
II.

34

Answer: D. Why?
1. Is not relevant, because the CEO is only concerned with the Sawmill
division.
2. Though analysis is always interesting, customers and competitors
have no direct influence on cost. Not relevant.
3. We need the current revenue and profit, since else we wont know
our goal: the CEO wants to regain profitability, but with just the
costs you dont know how much you need to reduce costs to reach
profitability.
4. Again, interesting but not relevant, we are focusing on cost here, not
revenue.
5. Obviously relevant: otherwise you dont know where the costs come
from.
III.
Answer: C.
Laying off a part of the workforce (A) directly lowers fixed costs: the
amount paid on wages. Reducing the finished goods inventory (B) can
save money in two ways: (1) warehousing finished goods is costly and
(2) less inventory means less money tied up in your firm, freeing up
resources and reducing (possible) debt burden. Renegotiating prices
(D)directly influences variable costs: the less you pay for materials, the
lower your costs. Even though C (lowering prices) might help increasing
revenue, this is far from certain. Secondly, it does nothing to reduce
costs, the main goal of our CEO.
IV.
Answer: C.
We need to calculate A:
Price 2005:15,000,000/50,000 = 30
Price 2010: 5,000,000/20,000 = 25
Difference = 30 - 25 = 5, which is (5/30)*100% = 16,7 % > 15 %.
Therefore, this statement is true.
Statement B can indeed be concluded from this table: pallet prices in
2005 are (4,000,000/400,000 = ) $10 and remain at that level
throughout 2010.
On C: Even though Sawmill As revenue ($ 15 million) + the Pallet
division revenue ($ 4 million) is $ 19 million, we dont know the revenue
from Sawmill B. Based on this table, we cannot conclude that BePals
revenue is $ 19 million.
35

To check whether statement D is correct requires the following

calculation: Revenue 2007 (9) - Revenue 2006 (6) = 3, and (3/9)*100% =
33%
V.
Answer: A.
First we need to calculate the per unit price in 2009, which was
7,000,000 / 28,000 = $ 25. We know the profit margin (17 %), so the
profit per unit is 0.17*25 = $ 4.25, which is answer A.
VI.
Answer: A.
The question is a little vague, but you are told that fixed and variable
costs remain the same, while volume drops. This means that fixed costs
are distributed over a smaller number of units sold, which will lower the
profit per unit. A is thus the correct answer.
VII.
Answer: B.
A. A lot of our competitors are state-owned and would be able to lower
their prices because of the tax cuts. This would force us to lower
prices as well to remain competitive.
B. Restricting woodcutting limits would increase the costs of cutting
wood (forcing woodcutters to travel further to cut wood) and thus
prices of the primary resource for processed wood would increase as
well. This would lead to an increase in processed wood prices.
C. These technological advancements would lead to an increase in
efficiency and processed wood supply, lowering processed wood
prices.
D. If the demand for processed wood decreases because people dont
build wooden houses anymore, prices will be lower with a constant
supply.

36

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Acknowledgements
This is a big thank you to all who proof-read the first versions of this
book. Without you, this book would not be as good as it is now, without
spelling mistakes and even better geared towards the non-consultant
reader. I thank you.
I thank everyone for their support during the creation of this book. It
wasnt always an easy process. Im proud of what it has become and
hope itll get my readers the thing they want: a job in the strategic
management consultant.
I based this book on my personal experience which includes the many
written sources I read on during my own practice as well as many case
interview coaching sessions I gave to groups and individual students. I
paid special attention that all material in this book is original work by
my hand, but it is unavoidable that some similarities might occur. I tried
to give credit where it is due but if you find something missing the
appropriate references, do not hesitate to contact me at
steve@caseinterviewhq.com.
The material in this book is copyrighted and distribution of this book in
any form is illegal.

38