BCG Potential Test 2 PDF

Boston Consulting Group Potential Test

Practice Test
igotanoffer.com

BCG Potential Test #2
Copyright © 2015 IGotAnOffer Ltd.

How to make the most of this practice test (1/2)
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Grade each of the questions: +3 points for correct answers, -1 point for incorrect answers, 0 points for
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How to make the most of this practice test (2/2)
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Instructions
Online case. During your recruiting process with BCG you will have to go through an online case. The
purpose of this exercise is to test your analytical and logic skills as well as your business sense.
Sample. This document is a sample of 23 questions put together by IGotAnOffer. Its purpose is to help
you prepare for the actual online exercise you will have to complete. We recommend that you take no
more than 45 minutes to solve this test.
Each question is divided into 2 parts:

•  on the left, you will find the question itself
•  on the right, you will find the information you need to answer the question
No calculator. You should complete this sample test without using a calculator.
Scoring system. You should select one or more answers for each question. During the actual test you
will be able to move onwards and backwards and change your prior answers so you should feel free to
do the same here. For each right answer you will get +3 points, you will get 0 points for no answer and -1
point for a wrong answer.

BCG Potential Test – Telyss
Question 1 Doc 1 Doc 2 Doc 3 Doc 4 Doc 5 Doc 6

What is the percentage
contribution of each revenue
stream to the overall revenue
Sales forecasts
increase between 2015 and
2019? (China, export market Company overview Forecasted revenue per region
excluding China, domestic
market) £M
Telyss manufactures heating systems for
farms. Its headquarters and factory are in 90
1.  +80%, +45%, -17%
the London area (UK).
2.  +80%, +53%, -33% 80 25
3.  +80%, +37%, -17% The company is one of the leading 70
4.  -17%, +37%, +80% heating system manufacturers in the 15
world. Telyss sells heating systems that 60 10
1 5
use three different types of energy 20
Question x / 23
sources: natural gas, electricity, and liquid 50 9 11 12 14
propane. The company is known for the
40
quality of its products.
30
The company plans to enter the Chinese 43 42 40
44
market to benefit from the country’s high 20 45
growth rate. Telyss already sells its
products outside of the UK but has never 10
sold any products in China. It hopes to
significantly increase its revenue by 0
2015 2016 2017 2018 2019
entering this high potential market.
China (£M)
Export market excluding China (£M)
Domestic market (£M)


Which of the following
statements is true?
Sales forecasts
1.  On average, the export
market excluding China is Company overview Forecasted revenue per region
expected to grow at 50%
per year or more £M
2.  In 2019, the domestic Telyss manufactures heating systems for
farms. Its headquarters and factory are in 90
market is expected to
the London area (UK).
remain bigger than all 80 25
export markets combined The company is one of the leading 70
3.  Between 2016 and 2017, heating system manufacturers in the 15
China’s market size is world. Telyss sells heating systems that 60
5
10
use three different types of energy 1 20
expected to increase Question x / 23 14
sources: natural gas, electricity, and liquid 50 9 11 12
400% more than the
propane. The company is known for the
export market excluding quality of its products. 40
China
30
4.  None of the above / we The company plans to enter the Chinese 43 42 40
44
lack sufficient information market to benefit from the country’s high 20 45
at this stage growth rate. Telyss already sells its
products outside of the UK but has never 10
sold any products in China. It hopes to
significantly increase its revenue by 0
2015 2016 2017 2018 2019
entering this high potential market.
China (£M)
Export market excluding China (£M)
Domestic market (£M)


What would be the market size
for farms heating systems in
China in 2015, assuming that
Market sizing
only natural gas (NG) heaters
are sold? China market data Telyss product information
1.  £22 M
2.  £32 M Number of farms Product specifications LPG NG Elec.
3.  £42 M New farms in 2015 100 Heat in kWh produced
50 50 20
4.  £52 M per hour (kWh / h)
New farms in 2019 250 Hours of operation per
500 500 500
year (h)
Existing farms as of 2014 10,000
Retail price (£) 1,100 1,000 500
Annual share of old farms replacing
Question x / 23
their heating system
1%
Area covered (m2) 500 500 200
Energy in China (2014 and 2015)

Information
Energy needs (MWh / farm / year) 4,000 Natural gas and Propane are both gases.
Propane can be compressed into a liquid
Price of electricity (CNY / kWh) 1 in order to make it more convenient to
transport. It is then called Liquid Propane
Price of coal (CNY / tonne) 1,000 Gas (LPG).
In natural gas and LPG heaters, the
Price of LPG (CNY / tonne) 7,000 combustion of fossil fuel produces heat. In
electric heaters, electricity circulates in a
Price of natural gas (CNY / m3) 4 heating element, which produces heat.


Which piece of information is
necessary to determine if
Telyss will meet its 2015 target
Market sizing
for China?
China market data Telyss product information
1.  The profit margin per type
of heater in 2015
2.  The market share that Number of farms Product specifications LPG NG Elec.
would enable Telyss to New farms in 2015 100 Heat in kWh produced
50 50 20
break even in China in per hour (kWh / h)
2015 New farms in 2019 250 Hours of operation per
500 500 500
year (h)
3.  The share of Chinese
customers who are willing Retail price (£) 1,100 1,000 500
to purchase a heater in Question x / 23 1%
2015 Area covered (m2) 500 500 200
4.  The market share of Telyss
in 2015 for China
Information


Given the metric you found in
question 4, what is the lowest
value of this metric that would
Market sizing
ensure Telyss meets its target
in 2015? China market data Telyss product information
1.  0.9%
2.  3.2% Number of farms Product specifications LPG NG Elec.
3.  5.2% New farms in 2015 100 Heat in kWh produced
50 50 20
4.  10.3% per hour (kWh / h)
New farms in 2019 250 Hours of operation per
500 500 500
year (h)
Retail price (£) 1,100 1,000 500
Question x / 23
1%
Area covered (m2) 500 500 200

Information


statements is true?
Market research
1.  In China, the fuel cost is
lower if heating with LPG Notes from interviews carried out by your team
instead of natural gas
2.  In China, the electricity Farm manager, Potential customer CEO, Telyss (continued)
cost of heating with an
electric heater is lower “Coal heating is not convenient for me. “A heater is successful when it maximises
than the fuel cost of We have to fill the furnace every day. Gas convenience and guarantees a fuel cost per
(LPG and natural gas) is more convenient kWh of 0.5 CNY or less. If two heaters are
heating with LPG
because it is automatic. Electricity is even equally convenient and provide a fuel cost
3.  In China, the fuel cost of more convenient because we don't have of 0.5 CNY / kWh or less, customers will
heating with coal is not to handle the gas supply.” choose the one with the lowest fuel cost.”
cheaper than the fuel cost energy loss with gas LPG or electricity.
“The main objective of farmers is to
of heating with LPG Engineer, Telyss increase their profits.”
4.  In China, the electricity
“I think that heating with LPG is not more Technical information and assumptions
cost of heating with an
expensive than heating with coal. 1kg of provided by Telyss
electric heater is lower coal is indeed cheaper than 1kg of LPG.
than the fuel cost of But 1 kg of LPG produces much more •  Heat is an energy expressed in kWh
heating with coal heat than 1 kg of Coal.” •  Heat is produced by the combustion of a
fuel whose quantity is expressed in kg or
CEO, Telyss m3 depending on the type of fuel
•  1 kg of coal produces 2 kWh of heat
“I want to go step by step. Start by selling •  1 kg of LPG produces 14 kWh of heat
only one product. The one that is likely to •  1 m3 of NG produces 10 kWh of heat
be successful in as many Chinese •  1 kWh of electricity produces 1kWh of
regions as possible.” heat


For each region, which type of
heater guarantees a cost of 0.5
CNY or less per kWh?
Market segmentation by region
1. North: coal Map of China with market information (2014)

South: none
West: none
NORTHERN PROVINCES
East: electricity Coal: 0.5 CNY / kg
LPG: 8.0 CNY / kg
2. North: coal, LPG, NG NG: 4.0 CNY / m3
South: coal, LPG, NG Electricity: 1.5 CNY / kWh
West: coal, LPG, NG WESTERN PROVINCES
East: coal, LPG, electricity, NG Coal: 0.9 CNY / kg EASTERN PROVINCES
Question
LPG:x7.0 / 23
CNY / kg Coal: 1.0 CNY / kg
3. North: coal, NG NG: 4.0 CNY / m3 LPG: 7.0 CNY / kg
South: coal, LPG, NG Electricity: 0.8 CNY / kWh NG: 4.0 CNY / m3
Electricity: 0.3 CNY / kWh
West: coal, LPG, NG
East: coal, LPG, electricity, NG
4. North: coal
South: coal, LPG SOUTHERN PROVINCES
West: coal, LPG Coal: 1.0 CNY / kg
East: coal, LPG, electricity LPG: 6.0 CNY / kg
NG: 4.0 CNY / m3


For each region, which type of
heating system minimises the
heating cost per kWh?
1. North: electricity Map of China with market information (2014)

South: coal
West: coal
NORTHERN PROVINCES
East: coal Coal: 0.5 CNY / kg
LPG: 8.0 CNY / kg
2. North: coal NG: 4.0 CNY / m3
South: NG Electricity: 1.5 CNY / kWh
West: coal WESTERN PROVINCES
East: electricity Coal: 0.9 CNY / kg EASTERN PROVINCES
Question
LPG:x7.0 / 23
3. North: coal NG: 4.0 CNY / m3 LPG: 7.0 CNY / kg
South: NG Electricity: 0.8 CNY / kWh NG: 4.0 CNY / m3
West: NG
East: electricity
4. North: coal
South: LPG SOUTHERN PROVINCES
West: NG Coal: 1.0 CNY / kg
East: LPG LPG: 6.0 CNY / kg
NG: 4.0 CNY / m3


Which heater would you
advise Telyss to sell in China?
Your recommendation should
match the objectives of the
CEO. Map of China with market information (2014)
1.  The LPG heater

NORTHERN PROVINCES
2.  The natural gas heater Coal: 0.5 CNY / kg
3.  The electric heater LPG: 8.0 CNY / kg
4.  All three heaters NG: 4.0 CNY / m3
5.  None of these three Electricity: 1.5 CNY / kWh
heaters can compete with WESTERN PROVINCES
coal heating Coal: 0.9 CNY / kg EASTERN PROVINCES
Question
LPG:x7.0 / 23
NG: 4.0 CNY / m3 LPG: 7.0 CNY / kg
Electricity: 0.8 CNY / kWh NG: 4.0 CNY / m3
SOUTHERN PROVINCES
Coal: 1.0 CNY / kg
LPG: 6.0 CNY / kg
NG: 4.0 CNY / m3


The price of natural gas is
flexible and varies with market
conditions. What is the
maximum price per m3 for
which using NG is cheaper or Map of China with market information (2014)
equal to using any other
energies in all regions of
NORTHERN PROVINCES
China? Coal: 0.5 CNY / kg
LPG: 8.0 CNY / kg
1.  2.00 CNY / m3 NG: 4.0 CNY / m3
2.  2.25 CNY / m3 Electricity: 1.5 CNY / kWh
3.  2.50 CNY / m3 WESTERN PROVINCES
4.  2.75 CNY / m3 Coal: 0.9 CNY / kg EASTERN PROVINCES
Question
LPG:x7.0 / 23
NG: 4.0 CNY / m3 LPG: 7.0 CNY / kg
Electricity: 0.8 CNY / kWh NG: 4.0 CNY / m3
SOUTHERN PROVINCES
Coal: 1.0 CNY / kg
LPG: 6.0 CNY / kg
NG: 4.0 CNY / m3


Given the 2015 turnover target
of Telyss, what production
solution would maximise its
Exporting vs. subcontracting vs. producing locally
profits?
Operational processes for each
Costs for each scenario
Assume that Telyss only sells scenario
one product, the one you
Fixed Export from Subcontract Produce in Export from UK Subcontract in Produce in
determined best suited to cost UK in China China China China
succeed in question 9. OPEX /
£10,000 £5,000 £50,000
month Telyss purchases
components from suppliers in USD
1.  Exporting from the UK Variable Export from Subcontract Produce in
2.  Subcontracting in China costs UK in China China Sub
Telyss
3.  Producing in China LPG heater Telyss Contractor
assembles in
Production assembles in the assembles in
4.  None of the above / we Question
cost / unit x£500
/ 23 £250 £200
UK (cost in £) China (cost in
China (cost in
CNY)
lack sufficient information Transport CNY)
£60 £10 £10
cost / unit
NG heater
Customers order the heaters and Telyss gets paid in
Production CNY on delivery
£500 £250 £200
cost / unit
Transport
£60 £10 £10
cost / unit
Electricity heater
Production
£300 £150 £100
cost / unit
Transport
£40 £5 £5
cost / unit
£1 = 10 CNY


If Telyss chooses to build a
factory in China, in which year
will profits start to be
positive?
Assume that Telyss only sells scenario
one product, the one you
determined best suited to cost UK in China China China China
succeed in question 9. OPEX /
£10,000 £5,000 £50,000
components from suppliers in USD
1.  In 2015 Variable Export from Subcontract Produce in
2.  In 2016 costs UK in China China Sub
Telyss
3.  In 2017 LPG heater Telyss Contractor
assembles in
4.  In 2018 Question
cost / unit x£500
/ 23 £250 £200
China (cost in
CNY)
5.  In 2019 Transport CNY)
£60 £10 £10
cost / unit
NG heater
Customers order the heaters and Telyss gets paid in
£500 £250 £200
cost / unit
Transport
£60 £10 £10
cost / unit
Electricity heater
Production
£300 £150 £100
cost / unit
Transport
£40 £5 £5
cost / unit
£1 = 10 CNY


statements is false?
1.  In scenario 2, if the
subcontractor copies Operational processes for each
Telyss’s product and sells scenario
it directly to customers,
then there is a risk of cost UK in China China China China
increased competition OPEX /
£10,000 £5,000 £50,000
2.  In scenario 2, if the components from suppliers in USD
subcontractor is not able Variable Export from Subcontract Produce in
to meet Telyss’s costs UK in China China Sub
Telyss
manufacturing standards, LPG heater Telyss Contractor
assembles in
then there is a risk of Question
cost / unit x£500
/ 23 £250 £200
China (cost in
CNY)
decreased quality Transport CNY)
£60 £10 £10
3.  In scenario 2, if the cost / unit
NG heater
subcontractor goes Customers order the heaters and Telyss gets paid in
bankrupt then there is a cost / unit
£500 £250 £200
risk to business continuity Transport

£60 £10 £10
cost / unit
4.  In both scenario 2 and
Electricity heater
scenario 3, the production Production
£300 £150 £100
is handled in China. As a cost / unit
result, there is no Transport
£40 £5 £5
cost / unit
currency risk
£1 = 10 CNY


Which one of the following
strategies does not help to
limit at least one of the risks
stated in question 13?
1.  The subcontractor first scenario
delivers the goods to a
warehouse 100% cost UK in China China China China
controlled by Telyss OPEX /
£10,000 £5,000 £50,000
which then ships the components from suppliers in USD
goods to the final Variable Export from Subcontract Produce in
customers costs UK in China China Sub
Telyss
2.  Telyss checks the quality LPG heater Telyss Contractor
assembles in
of the components at the Question
cost / unit x£500
/ 23 £250 £200
China (cost in
CNY)
supplier’s factory before Transport CNY)
£60 £10 £10
the components are cost / unit
NG heater
shipped to the Customers order the heaters and Telyss gets paid in
subcontractor for cost / unit
£500 £250 £200
assembly Transport
£60 £10 £10
cost / unit
3.  Telyss works with two
Electricity heater
subcontractors Production
£300 £150 £100
simultaneously cost / unit
4.  Telyss hedges itself Transport
£40 £5 £5
cost / unit
against exchange rates
£1 = 10 CNY
fluctuations


Above which quantity of
heaters are natural gas
heaters cheaper to install than
Installation costs
LPG heaters?
Heater installation proforma invoice Farms size per region
Include the price of the heater
in the installation cost. NG
Unit cost Qty / Total cost North
North South
South East West
East West
% of farms in heating surface category, per region

installation 100%
(CNY) heater (CNY) 93%
1.  15 costs
NG grid 90% 93%
2.  22 - - 100,000
connection
3.  32 80%
125
4.  42 Piping 10 / meter 1,250
meters 70% 65%
5.  56 Total 101,250 65% 57%
60%
Question
LPG x Unit
/ 23cost Qty / Total cost 57% 51%
Installation 50% 51%
Costs
40% 42% 37%
1 LPG tank 3,600 1 3,600
125
37%
Piping 10 / meter 1,250 30% 25%
meters 22%
Total 4,850
25%
20% 22%
Remarks 10%
The cost of connecting the farm to the natural 0%
gas grid remains constant, no matter how many 0 30%
0% 30 4059%
10 20 30% 60 70 85%
50 59% 85%
80 90100%
100
heaters are installed. Farms per region as % of total
% number of farms
The other costs above are given for the Heating surface of the farm in m2
installation of one heater.
£1 = 10 CNY 0 to 5,000 to More than
5,000 m2 10,000 m2 10,000 m2


Assuming that customers
always choose the solution
with the lowest installation
Installation costs
costs, what is the least
suitable region for Telyss? Heater installation proforma invoice Farms size per region
Assume that Telyss only sells NG

Unit cost Qty / Total cost North
North South
South East West
East West
% of farms in heating surface category, per region

one product, the one you installation 100%
determined best suited to costs
NG grid 90% 93%
succeed in question 9. - - 100,000
connection
80%
125
1.  North Piping 10 / meter 1,250
meters 70% 65%
2.  South Total 101,250 65% 57%
60%
3.  East Question
LPG x Unit
/ 23cost Qty / Total cost 57% 51%
4.  West Installation 50% 51%
Costs
40% 42% 37%
1 LPG tank 3,600 1 3,600
125
37%
Piping 10 / meter 1,250 30% 25%
meters 22%
Total 4,850
25%
20% 22%
Remarks 10%
The cost of connecting the farm to the natural 0%
gas grid remains constant, no matter how many 0 30%
0% 30 4059%
10 20 30% 60 70 85%
50 59% 85%
80 90100%
100
heaters are installed. Farms per region as % of total
% number of farms
The other costs above are given for the Heating surface of the farm in m2
installation of one heater.
£1 = 10 CNY 0 to 5,000 to More than
5,000 m2 10,000 m2 10,000 m2

Question 17 Doc 7 Doc 8 Doc 9 Doc 10

In 2014 which source of heat
produced the highest amount
of CO2 per kWh?
China energy mix
1.  Electricity Electricity production mix in China CO2 emissions by technology

2.  Natural Gas
3.  LPG
4.  Coal CO2 emissions (g) / kWh
1% 1100
100% 3% 1000
1%
90% 5% 15% 1000
900
80%
2014 15%
800
70%
15% 700
60% 2014
Question x / 23 600
600
50%
90% 20% 500
400
40%
400
30% 300 250
200
20% 35% 200
100
50 50
10% 2020 100
0% target
2014 2020 target
0
Nuclear
Renewable
Nucleargas
Natural Renewable
Natural Gas
Hydropower Hydropower
Coal
Coal Electricity production Heat production


If the 2020 electricity mix
target is met, how many fewer
grams of CO2 will 1 kWh of
China energy mix
electricity emit, compared to
2014? Electricity production mix in China CO2 emissions by technology
1.  438.5 g
2.  490.5 g CO2 emissions (g) / kWh
1% 1100
3.  665.5 g 100% 3% 1% 1000
4.  845.5 g 90% 5% 15% 1000
900
80%
2014 15%
800
70%
15% 700
60% 2014
Question x / 23 600
600
50%
90% 20% 500
400
40%
400
30% 300 250
200
20% 35% 200
100
50 50
10% 2020 100
0% target
2014 2020 target
0
Nuclear
Renewable
Nucleargas
Natural Renewable
Natural Gas
Hydropower Hydropower
Coal
Coal Electricity production Heat production


Assuming that the domestic
natural gas base supply of 200
billion m3 remains constant
Future of energy and agriculture in China
between 2014 and 2020,
what is the expected price of Interview extract Future sources of natural gas in China
natural gas in 2020?
Li Hu, head of the Chinese Energy Agency Additional natural gas supply in 2020
1.  1.5 CNY / m3
2.  2.4 CNY / m3 “Our objective is to rely less on coal energy 50
and to reduce CO2 emissions. Regarding
3.  3.5 CNY / m3 agriculture, Chinese farming techniques Domestic Import from
4.  4.0 CNY / m3 are still behind those used in Europe, shale gas Russia
resulting in poor meat quality and frequent 40
outbreak of swine fever. Our target is to
Contract size (Billion m3)

improve food quality and reduce the risk of
Question x / 23
epidemics by spreading best practices for 30
farm management in China, including:
automatic environment control
technologies, animals traceability, etc.
20
We also plan to increase the share of Import from Import from
electricity produced from natural gas. We Kazakhstan Mongolia
expect a large new contract with Russia to 10
make natural gas more affordable for our
economy. In 2014 natural gas supply in
China was 200 billion m3, and we know 10% 90%
that when the supply increases by 100%, 0
0% 20% 40% 60% 80% 100%
the price decreases by 150%. This
relationship between price and supply is Probability of success
stable and linear.”


Telyss’s CEO is giving a
speech at a conference. Which
of the following information,
provided by his director of
communication, is incorrect? Interview extract Future sources of natural gas in China
1.  In some regions of China, Li Hu, head of the Chinese Energy Agency Additional natural gas supply in 2020
coal heating is not the
cheapest heating source “Our objective is to rely less on coal energy 50
(in CNY / kWh) agriculture, Chinese farming techniques Domestic Import from
2.  In every region, natural are still behind those used in Europe, shale gas Russia
gas heating is expected to resulting in poor meat quality and frequent 40
be cheaper than coal outbreak of swine fever. Our target is to

heating by 2020 if the improve food quality and reduce the risk of
Question x / 23
epidemics by spreading best practices for
price of coal stays at 2014 30
levels automatic environment control
3.  Even for very small farms, technologies, animals traceability, etc.
the installation cost is not 20
cheaper for LPG heaters We also plan to increase the share of Import from Import from
electricity produced from natural gas. We
than for natural gas Kazakhstan Mongolia
heaters. As a result, make natural gas more affordable for our
natural gas is always a economy. In 2014 natural gas supply in
better option than LPG China was 200 billion m3, and we know 10% 90%
4.  Currently, heating with that when the supply increases by 100%, 0
0% 20% 40% 60% 80% 100%
electricity in China emits the price decreases by 150%. This
far more CO2 than heating stable and linear.”
with LPG or natural gas


statements is both in the
interest of the Chinese
government and of Chinese
farms? Interview extract Future sources of natural gas in China
1.  Using gas heaters will Li Hu, head of the Chinese Energy Agency Additional natural gas supply in 2020
generate less pollution
than using coal or electric “Our objective is to rely less on coal energy 50
heaters. This will agriculture, Chinese farming techniques Domestic Import from
contribute to reducing are still behind those used in Europe, shale gas Russia
pollution and improving resulting in poor meat quality and frequent 40
the quality of the outbreak of swine fever. Our target is to

environment improve food quality and reduce the risk of
Question x / 23
epidemics by spreading best practices for
2.  Using gas heaters will 30
reduce the cost of heating automatic environment control
at Chinese farms technologies, animals traceability, etc.
3.  When they are in a warm 20
environment, animals are We also plan to increase the share of Import from Import from
electricity produced from natural gas. We
less likely to be sick, they Kazakhstan Mongolia
grow healthier and faster make natural gas more affordable for our
and consume less feed economy. In 2014 natural gas supply in
4.  None of the above China was 200 billion m3, and we know 10% 90%
that when the supply increases by 100%, 0
0% 20% 40% 60% 80% 100%
the price decreases by 150%. This
stable and linear.”


companies is most likely to
create synergies with Telyss’s
Acquisition opportunity
heating systems activity?
Telyss acquisition plans List of potential targets
1.  MU YIN FARM
2.  SODOC The CEO of Telyss plans to acquire a local Activity Product features
3.  TRIANGLE company in order to strengthen the
MU YIN has MU YIN is known for using
4.  GREE ADDITIVES company’s position in the Chinese market.
50 farms the best equipment in their
across China farms, ensuring a high level
We say that there are synergies between
of traceability and food
company A (selling product A) and safety
company B (selling product B) when both
of the following conditions are fulfilled: SODOC sells SODOC’s systems
Question
•  ProductxA/ and
23 product B can be sold ventilation automatically increase or
to the same customers systems and decrease a farm’s ventilation
•  Using product A increases the need to temperature based on the outside
use product B and using product B control temperature, the inside
increases the need to use product A systems temperature, and the quality
of the air inside the farm
TRIANGLE TRIANGLE’ s high quality
produces insulation material reduces
insulation temperature variations
material throughout the seasons
GREE GREE’s feed contains
produces additives to increase the
animal feed resistance of animals to
extreme weather conditions


Which of the four
subcontractors might be
violating the Chinese ecotax
CO2 emissions and ecotax
law?
Subcontractors information
1.  Subcontractor 1
2.  Subcontractors 1 and 2
3.  Subcontractors 1 and 4 Telyss has chosen to work with four
subcontractors at the same time. The CEO
4.  Subcontractors 2, 3 and 4
has noticed that some of them may breach a
5.  All subcontractors Chinese law that requires factories emitting
more than 75 tonnes of CO2 per year to pay
an ecotax equal to 0.5% of their turnover.
You are asked to investigate which

Question x / are
subcontractors 23violating this rule.
Additional information about the four Telyss
subcontractors:
Subcontractor 1 2 3 4
CO2 emitted
100 NA 50 NA
(tonnes)
Turnover
45,000 56,000 230,000 67,000
(k CNY)
Ecotax
NA 280 NA 255
(k CNY)

Answer key
Question 1 Question 2
Correct answer: 3 Correct answer: 3
The percentage contribution can be calculated as Answer 1 is not correct because the turnover for
follows: export market excluding China is increasing at less
than 50% per annum (£9M, £11M, £12M, £14M and
1. Calculate the growth of turnover from 2015 to 2019 £20M for each year from 2015 to 2019).
= (40 + 20 + 25) - (45 + 9 + 1) = £30M.
Answer 2 is not correct because the domestic market
2. Calculate the contribution of each segment as in 2019 is £40M, which is lower than the global export
(revenue increase between 2015 and 2019) / 30. market in 2019: 20 + 25 = £45M.
Then:
- Contribution of China = 24 / 30 For answer 3, notice that between 2016 and 2017:
- Contribution of Export market except China = 11 / 30 - The growth of the turnover in China is +£5M / year
- Contribution of Domestic market = -5 / 30 - The growth of the turnover in the rest of the export
market is +£1M / year
To avoid lengthy calculations, notice that answer 4 Therefore, the growth of turnover in China is equal to
cannot be correct because the Chinese contribution (5-1) / 1 = 400% more than the growth of turnover in
cannot be negative. the rest of export markets.
Then notice that answer 1, 2 and 3 only differ on the Therefore, in China between 2016 and 2017, the
export market except China segment, whose turnover grows 400% more than in the rest of the
contribution is 11 / 30. Since, 10 / 30 ≈ 33.3% and 1 / export market. Answer 3 is correct.
30 ≈ 3.3%, then 11 / 30 ≈ 36.6%.
Therefore, answer 3 is the right answer with
contribution of export market except China = 37%.

Answer key
The size of the market in China in 2015 is given by: Answer 1 is not the right answer: the profit margin per
Market size = number of natural gas heaters sold x type of heater could help calculate if Telyss meets its
price. profit target. But it does not help us to know what the
revenue will be in 2015.
There are 100 new farms to be built in 2015.
There are 10,000 x 1% = 100 old farms that need to Answer 2 is also incorrect: knowing whether Telyss
change their heating system in 2015. breaks even does not help to calculate its revenue in
Thus, a total of 200 farms need new heaters. 2015.
The heat produced per heater per year is given by: The share of Chinese customers willing to purchase a
50 x 500 = 25,000 kWh = 25 MWh. heater in 2015 is insufficient to calculate the revenue
of Telyss in 2015. It does not indicate whether
Therefore, the number of heaters needed per farm is customers will purchase a heater from Telyss or
equal to: 4,000 MWh / 25 MWh = 160. another company. Answer 3 cannot be the right
answer.
The total number of heaters needed is given by:
Total number of heaters = farms x heaters =160 x 200 The market share of Telyss in China for 2015 does
= 32,000. help to calculate its turnover in China for 2015
(turnover = market share x size of the market).
Finally, the value of the heater market is given by:
number of heaters x price = 32,000 x 1,000 = £32M The correct answer is answer 4.
The correct answer is answer 2.

Answer key
Telyss achieves its 2015 target if it revenues are £1M. The cost of 1 kWh of heat is equal to:
Therefore, the minimum market share that ensures (price of 1 unit of heating source) / (heat produced by
Telyss achieves its revenue target must solve: 1 unit of heating source)
(market share) x 32 = 1
For statement 1,
Therefore, Heating with LPG costs:
7 CNY / 14 kWh = 0.5 CNY / kWh
Market share = 1 / 32 ≈ 1 / 33 ≈ 3 / 100 ≈ 3% Heating with natural gas costs:
4 CNY / 10 kWh = 0.4 CNY / kWh < 0.5
Answer 2 is the closest answer. So statement 1 is false.
For statement 2:
Heating with electricity costs: 1 CNY / kWh > 0.5
Statement 2 is false.
Statement 3:
Heating with coal costs
1 CNY / 2 kWh = 0.5 CNY / kWh
Statement 3 is the right answer
Statement 4 is false because the cost of fuel if heating

with coal is lower than 1 CNY / kWh.

Answer key
The condition is met when the cost of heating (the The condition is met when the cost of heating
formula given in the previous answer key) is less than proposed in the answer is the lowest among all those
or equal to 0.5 CNY. available.
You can use some of the results obtained in question Here too, you can use some of the results obtained in
6 to reduce the number of calculations. question 6 to reduce the number of calculations.
•  For coal: 1 CNY / kg implies 0.5 CNY / kWh
•  For LPG: 7 CNY / kg implies 0.5 CNY / kWh In the west, coal costs 0.9 CNY / 2 kWh = 0.45 CNY /
•  For NG: 4 CNY / m3 implies 0.4 CNY / kWh kWh. It remains more expensive than natural gas. So
answer 1 and 2 cannot be correct.
Answer 1 is false because, in the southern provinces,
the prices of coal and LPG are below 1 CNY / kg and Answer 3 differs from answer 4 only in the southern
7 CNY / kg respectively. So the answer for southern and eastern provinces.
provinces cannot be “none”. In the eastern provinces,
- Electricity costs 0.3 CNY / kWh,
Answer 2 is false because, in the northern provinces, - LPG costs 7 CNY / kg = 0.5 CNY / kWh,
the price of LPG is higher than 7 CNY / kg, so the - Coal costs 1 CNY / kg = 0.5 CNY / kWh
LPG cost cannot be lower than 0.5 CNY / kWh. -  Natural gas costs 4 CNY / m3 = 0.4 CNY / kWh
Answer 4 does not list natural gas for any region. Therefore, electricity is the cheapest energy for
However, in all regions natural gas costs 4 CNY / m3 heating. So “East: LPG” in answer 4 is not correct and
= 0.4 CNY / kWh < 0.5 CNY. As a result answer 4 is answer 3 is the correct answer.
false and answer 3 is the correct answer.

Answer key
The CEO’s objective is to sell the product most likely The cost proposed in the four answers should be
to be successful (see conditions of success in Doc 3) compared to the cost of the cheapest energy source
across all energy sources and all four regions of
The electric heater is more convenient than the China. Therefore, the cost should be less than 0.25
natural gas and the LPG heater which are themselves CNY / kWh, which is the cost of coal in the northern
more convenient than coal heaters (Doc 3). provinces (0.5 CNY / 2 kWh = 0.25 CNY / kWh).
Question 7 provides the list of the heaters that Answer 1, 2 and 3 are less than or equal to 0.25 /
guarantee a cost of fuel below 0.5 CNY / kWh. kWh, since 2.5 CNY / m3 = 2.5 CNY / 10 kWh = 0.25
Crossing the least convenient heaters from the list CNY / kWh. Therefore, the maximum of these costs is
gives: North: coal, NG. South: coal, NG, LPG. West: 2.50 CNY / m3.
coal, LPG, NG. East: coal, LPG, electricity, NG.
Answer 3 is the right answer.
Therefore, in the north, NG heaters are most likely to
be successful and in the east, electric heaters are
most likely to be successful.
In the west and in the south, LPG is more expensive

than natural gas.
As a result, in the north, the south and the west, the

natural gas heater is most likely to be successful. The
correct answer is answer 2.

Answer key
The first step is to determine the quantity of heaters to The profit of Telyss will become positive when the
be sold in 2015. Given that Telyss plans to sell £1M of cumulated revenue become higher than the
heaters in 2015 and sells only natural gas heaters, at cumulated costs.
£1,000 per unit, Telyss should sell £1M / £1,000 =
1,000 units in 2015. In 2015:
Fixed cost for 2015 = £600,000
The second step is to calculate the cost of Variable costs = 1,000 x 210 = £210,000
manufacturing 1,000 heaters for each scenario. Revenue for 2015 = £1,000,000
Cost of exporting from the UK: Cumulated costs = Variable costs + fixed costs =
-  Fixed cost per year = £10,000 x 12 = £120,000 £210,000 + £600,000 = £810,000
-  Variable costs = £560 x 1,000 = £560,000 Cumulated revenue = £1,000,000
-  Total cost = 120,000 + 560,000 = £680,000
Cost of subcontracting in China: The cumulated revenue of Telyss is higher than the
-  Fixed cost = £5,000 x 12 = £60,000 cumulated expenses starting from 2015. The correct
-  Variable cost = £260 x 1,000 = £260,000 answer is answer 1.
-  Total cost = 60,000 + 260,000 = £320,000
Cost of producing in China:
-  Fixed cost = £50,000 x 12 = £600,000
-  Variable cost = £210 x 1,000 = £210,000
-  Total cost = 600,000 + 210,000 = £810,000
So the correct answer is answer 2

Answer key
All the statements have the form of a logical Answer 1: if the subcontractor does not deliver the
implication “if A then B”. goods to the final customer but to a warehouse
controlled by Telyss, it would be more difficult for them
Answer 1: If the subcontractor copies and sells to copy and sell the heaters, as they do not get a
Telyss’s products, then it becomes a competitor for direct access to customers. As a result, the
Telyss, so the competition is increased. competition risk is reduced.
Answer 2: If the subcontractor doesn’t meet the Answer 2: Checking the quality of the components
manufacturing standards, the quality of the end before the shipment to the subcontractor does not
product might decrease. reduce the risk that the subcontractor makes errors in
assembling the components. It only reduces the risk
Answer 3: If the subcontractor goes bankrupt, then of having components of bad quality. But this risk is
Telyss will not be able to assemble its products in not mentioned in question 13. This strategy does not
China until it finds a new subcontractor, which will address any risks mentioned in question 13.
result in business discontinuity.
Answer 3: working with two different subcontractors
Answer 4: the statement says that if the production is simultaneously would reduce the possibility that
made in China, there is no currency risk. This supply gets discontinued.
statement is not true because even if the assembly is
charged in CNY, components are purchased in USD. Answer 4: if Telyss takes an insurance against
So there is a possibility that the currency variation will currency variations, it reduces the currency risk.
impact Telyss in a negative way.
Therefore, answer 2 is the correct answer.

Answer key
If x is the quantity of heaters above which natural gas From your answer to question 15, you know that if
installation cost is lower than LPG installation cost, there are more than 22 heaters to install, natural gas
then x needs to solve: installation costs are lower than LPG installation
costs.
NG installation cost = 100,000 + 10,000 x < LPG
installation cost = (3,600 + 11,000) x As a result, if customers always choose the solution
with the lowest installation costs, it is less suitable for
Notice that the piping costs have been removed from Telyss to sell in a market with a high proportion of
the above equation because the cost is the same for farms that need less than 22 heaters.
natural gas installation and LPG installation.
Recall from Doc 2 that one natural gas heater covers
Then, 500m2. Thus, farms with a heating surface of 0 to
100,000 + 10,000 x < (3,600 + 11,000) x 5,000m2 need from 0 to 10 heaters. Those with a
Is equivalent to: 100,000 < 4,600 x heating surface of 5,000 to 10,000m2 need from 10 to
Or, x > 100,000 / 4,600 20 heaters and those with a heating surface of more
Which gives: x > 21.7 than 10,000m2 need more than 20 heaters
Therefore, natural gas installation cost is lower than The graph shows that the west is the smallest market
LPG installation cost if and only if more than 22 for farms that need more than 20 heaters. As a result,
heaters are installed. it is on this market that it is least suitable to sell the
natural gas heater when customers want the lowest
Answer 2 is the right answer installation cost. It would be more suitable to sell LPG
heaters.

Answer key
The amount of CO2 generated per kWh of electricity To calculate the total decrease in CO2 emissions
can be calculated by summing across all energy between 2014 and 2020, you can calculate the total
sources: % energy source in the mix x CO2(g) / kWh CO2 emitted in 2014 and in 2020 and subtract one
for energy source. result from the other.
In 2014 90% of 1 kWh of electricity came from coal However, to simplify calculations, you can also notice
and 1 kWh of electricity produced by coal emits 1,000 that the share of coal in the mix decreases from 90%
g of CO2. As a result, 1kWh of electricity produced at to 35% and that the share of all other energy sources
least 90% x 1000g = 900g of CO2. Therefore, (with lower emissions than coal) increases. Therefore
electricity heating was producing at least 900g / kWh emissions should decrease by at most:
in 2014. (35% x 1,000 g / kWh) - (90% x 1,000 g / kWh)
= 350 g / kWh – 900 g / kWh = -550 g / kWh
Natural gas heating produced 200g / kWh in 2014.
LPG heating produced 250g / kWh in 2014. The effect of a higher share of natural gas on total
Coal heating produced 400g / kWh in 2014. CO2 emissions is: (15% x 600 g / kWh) - (1% x 600
g / kWh) = 90 g / kWh – 6 g / kWh = 84 g / kWh
Therefore electricity emits more than any of the other
heating methods. The correct answer is answer 1. Therefore, since -550 + 84 = -466, the net decrease in
CO2 emissions must be less than 466g. The only
answer possible is therefore answer 1.

Answer key
The expected decrease in the price of natural gas Answer 1:

from 2014 to 2020 can be calculated as follows: Coal is not the cheapest energy in China for heating.
Decrease in price = (NG supply % increase from 2014 Question 8 shows that electricity is cheaper than coal
to 2020) x (-150 / 100) (since when the supply in the eastern provinces. Statement in answer 1 is
increases by 100%, the price decreases by 150%). true, so answer 1 is not the correct answer.
The supply of natural gas in 2020 is given by: 200 + Answer 2:

(probability of success of each project) x (size of Expected price of natural gas in 2020 = 2.4 CNY
each project) = 200 + 40 x 10% + 10 x 40% + 10 x Price per kWh = 2.4 CNY / 10 kWh = 0.24 CNY / kWh
80% + 40 x 90% = 200 + 4 + 4 + 8 + 36 = 252. Cheapest price of coal heating in 2014 was
0.5 CNY / kg = 0.5 CNY / 2 kWh = 0.25 CNY / kWh
This represents an increase of: (252-200) / 200 = 52 / 0.25 < 0.24. As a result, the statement is true.
200 = 26 / 100 = 26%
Answer 3:
Therefore, the expected decrease in the price of The correct answer to question 16 shows that for less
natural gas from 2014 and 2020 is given by: than 22 heaters, installation costs are cheaper for
26% x (-150 / 100) = 26% x (-1.5) = -26% - 13% = LPG heaters than for NG heaters. This statement is
-39% not true.
The price of natural gas in 2014 is 4.0 CNY and the Answer 4:
expected price in 2020 should be 39% lower. If you The correct answer to question 17 shows that this
use 40% as an approximation, you find that the statement is true.
expected NG price should be 4 x 0.6 = 2.4.

Answer key
The right answer is the one that helps to: (1) Reduce Answer 1: this answer is not correct because the
the dependency on coal energy or reduce CO2 product of MU YIN FARM are sold to customers who
emissions or avoid disease or improve meat quality are not farms while Telyss’s products are sold to
by spreading farm management best practices (Doc farms.
8) AND (2) Increase the profits of Chinese farms.
Answer 2: this answer is correct. Like heaters,
Answer 1: reducing pollution is only in the interest of SODOC products are also sold to farms.
the Chinese government. It does not make the If a farm buys a ventilation system it will bring cold air
Chinese farms more profitable which require a heater to increase the temperature.
If a farm buys a heater, it needs a climate control
Answer 2: The reduction of Chinese farms cost of system to regulate it.
heating is only in the interest of the farms, not of the
government. Answer 3: the customers of these two companies are
the same. But using insulation material does not
Answer 3: A warm environment improves the health of generate more need for a heater. On the contrary, it
animals, thus the quality of the meat. It also prevents may not be necessary to heat if a farm is well
diseases. This is in the interest of the government. insulated.
Moreover, it also maximises the growth of animals
while reducing the cost of feed. This increases the Answer 4: the customers of these two companies are
profitability of farms which is in the interest of farms. the same, but purchasing animal feed does not
The correct answer is therefore answer 3. generate a need for heaters. On the contrary, the
farmer may need to heat less because the feeds
make his animals more resistant to cold conditions.

Answer key
Question 23
Correct answer: 3
The subcontractors that may violate the law are the

one who emit more than 75 tonnes and who don’t pay
the ecotax.
0.5% of subcontractor 2’s turnover represents

280,000CNY. Since the amount of eco-tax paid equals
0.5% of the turnover, whether subcontractor 2 emits
more than 75 tonnes of CO2 per year or not, we know
that it complies with the law. So subcontractor 2
should not be investigated. Therefore, you can
eliminate answers 2, 4 and 5.
The turnover of subcontractor 4 is higher than that of

subcontractor 2 but the ecotax paid is lower.
Therefore, the amount of ecotax paid is lower than
0.5% of the turnover.
If subcontractor 4 emits more than 75 tonnes of CO2

then it does not comply with the law. So subcontractor
4 should be investigated. We can eliminate answer 1.
The correct answer is therefore answer 3

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Boston Consulting Group Potential Test

BCG Potential Test #2

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Do not print out the test.

Check your answer sheet against the answer key.

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Review the solutions in the answer key carefully

Do the test again

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Each question is divided into 2 parts:

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Question 1 Doc 1 Doc 2 Doc 3 Doc 4 Doc 5 Doc 6

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Question 2 Doc 1 Doc 2 Doc 3 Doc 4 Doc 5 Doc 6

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Question 3 Doc 1 Doc 2 Doc 3 Doc 4 Doc 5 Doc 6

Energy in China (2014 and 2015)

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Question 4 Doc 1 Doc 2 Doc 3 Doc 4 Doc 5 Doc 6

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Question 5 Doc 1 Doc 2 Doc 3 Doc 4 Doc 5 Doc 6

Energy in China (2014 and 2015)

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Question 6 Doc 1 Doc 2 Doc 3 Doc 4 Doc 5 Doc 6

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Question 7 Doc 1 Doc 2 Doc 3 Doc 4 Doc 5 Doc 6

1. North: coal Map of China with market information (2014)

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Question 8 Doc 1 Doc 2 Doc 3 Doc 4 Doc 5 Doc 6

1. North: electricity Map of China with market information (2014)

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Question 9 Doc 1 Doc 2 Doc 3 Doc 4 Doc 5 Doc 6

1. The LPG heater

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Question 10 Doc 1 Doc 2 Doc 3 Doc 4 Doc 5 Doc 6

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Question 11 Doc 1 Doc 2 Doc 3 Doc 4 Doc 5 Doc 6

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Question 12 Doc 1 Doc 2 Doc 3 Doc 4 Doc 5 Doc 6

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Question 13 Doc 1 Doc 2 Doc 3 Doc 4 Doc 5 Doc 6

risk to business continuity Transport

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Question 14 Doc 1 Doc 2 Doc 3 Doc 4 Doc 5 Doc 6

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Question 15 Doc 1 Doc 2 Doc 3 Doc 4 Doc 5 Doc 6

% of farms in heating surface category, per region

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Question 16 Doc 1 Doc 2 Doc 3 Doc 4 Doc 5 Doc 6

Assume that Telyss only sells NG

% of farms in heating surface category, per region

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Question 17 Doc 7 Doc 8 Doc 9 Doc 10

1. Electricity Electricity production mix in China CO2 emissions by technology

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Question 18 Doc 7 Doc 8 Doc 9 Doc 10

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Question 19 Doc 7 Doc 8 Doc 9 Doc 10

Contract size (Billion m3)

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Question 20 Doc 7 Doc 8 Doc 9 Doc 10

Contract size (Billion m3)

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1.  The LPG heater

1.  Electricity Electricity production mix in China CO2 emissions by technology