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Stretch: Chiaolin Cycles: should it build an e-bike line?
You run the case. Read the prompt, answer questions from the notes below, and share data only when the candidate asks for it or gets stuck. Score at the end.
Case timer
00:00
1. Read the prompt aloud
Read it slowly, then pause. Let the candidate ask questions before they structure.
Written case: Chiaolin Cycles, a Taiwanese bicycle maker, is deciding whether to build a new e-bike assembly line. Using the data pack below, prepare three slides: should Chiaolin build the line, what are the main risks, and how should it reduce them? Money figures are in Taiwan dollars (TWD).
The prompt refers to Exhibit 1. After reading it, say: "Open Exhibit 1 now."
Format note: Difficulty: Stretch. Format: written case, with a data pack. Industry: Manufacturing. Region: Taiwan. Interview length: about 45 minutes. The company is fictional and all figures are illustrative. In a written case you usually get 30 to 60 minutes with a data pack, then present your slides and answer questions.
2. Answers to clarifying questions
Give these answers only if the candidate asks. If they ask something not listed, give a sensible answer or say it does not matter here.
If asked: What return does the company need?
Answer: It uses an 8 percent discount rate and wants payback within five years.
If asked: How long will the line last?
Answer: About 8 years. At 8 percent, TWD 1 a year for 8 years is worth about TWD 5.75 today.
If asked: Where would the e-bikes be sold?
Answer: About 40 percent in one large export market, and the rest across Europe and Asia.
3. The hypothesis a strong candidate states
Listen for an early, testable guess like this one. It does not need to match word for word.
E-bike margins are thin because the motor and battery are expensive. My hypothesis is that the line pays off at planned volume, but that the result is sensitive to volume and to trade barriers in the largest market.
4. A model structure
Compare the candidate's structure with this one. A different split can be just as good if it is clean and fits the problem.
- Value of the line = yearly cash x 5.75 - investment
- Contribution per e-bike and yearly cash
- Key: Payback and NPV
- Break-even volume
- Risk: the largest export market
Exhibit 1
The prompt uses this exhibit, so the candidate opens it right after you read the prompt ("Show exhibit 1" on their screen).
| Item | Value |
|---|---|
| Capacity of the new line (e-bikes a year) | 60,000 |
| Expected sales (e-bikes a year) | 50,000 |
| Price to distributors (TWD per e-bike) | 34,000 |
| Variable cost, about half of it motor and battery (TWD per e-bike) | 27,000 |
| Fixed running cost of the line (TWD million a year) | 150 |
| Investment (TWD million) | 600 |
| Life of the line (years) | 8 |
| Share of sales in the largest export market (%) | 40 |
So-what
Each e-bike earns TWD 7,000, so the line needs high volume to cover TWD 150 million of fixed cost, and 40 percent of sales depend on one market.
5. The working, step by step
Each step shows how a strong candidate works it out. Share a new fact from it only when the candidate asks or is stuck, and let them do the math: the result in the dark box is what they should reach.
Step 1: Contribution per e-bike
What a strong candidate does: Price to distributors minus variable cost.
Contribution (TWD per e-bike): 34,000 - 27,000 = 7,000
Step 2: Yearly cash
What a strong candidate does: 50,000 e-bikes at TWD 7,000, minus TWD 150 million of fixed running cost.
Yearly cash (TWD million): 50,000 × (34,000 - 27,000) ÷ 1,000,000 - 150 = 200
Step 3: Payback
What a strong candidate does: TWD 600 million divided by the yearly cash.
Payback (years): 600 ÷ (50,000 × (34,000 - 27,000) ÷ 1,000,000 - 150) = 3
Step 4: NPV over 8 years
What a strong candidate does: Yearly cash times 5.75, minus the investment.
NPV (TWD million): (50,000 × (34,000 - 27,000) ÷ 1,000,000 - 150) × 5.75 - 600 = 550
Step 5: Break-even volume
What a strong candidate does: The yearly cash that gives an NPV of zero is 600 divided by 5.75, plus the fixed cost, all divided by TWD 7,000 per e-bike.
Break-even volume (e-bikes a year): (600 ÷ 5.75 + 150) × 1,000,000 ÷ (34,000 - 27,000) = 36,335
Step 6: Curveball: a new import duty
What a strong candidate does: The largest export market announces a 25 percent import duty on e-bikes. Distributors say Chiaolin must cut its price by TWD 4,000 on the 20,000 e-bikes sold there to keep them.
Yearly cash after the price cut (TWD million): (50,000 × 7,000 - 20,000 × 4,000) ÷ 1,000,000 - 150 = 120
Step 7: NPV after the price cut
What a strong candidate does: The new yearly cash times 5.75, minus the investment. Payback becomes 5 years.
NPV with the price cut (TWD million): ((50,000 × 7,000 - 20,000 × 4,000) ÷ 1,000,000 - 150) × 5.75 - 600 = 90
Step 8: NPV if Chiaolin leaves that market
What a strong candidate does: Selling only 30,000 e-bikes elsewhere at the full price.
NPV without that market (TWD million): (30,000 × 7,000 ÷ 1,000,000 - 150) × 5.75 - 600 = -255
The recommendation to listen for
At the end, say: "The CEO walks in. What is your recommendation?"
Slide 1, the answer: Chiaolin should build the e-bike line, but in a way that limits its dependence on one export market. At the planned 50,000 e-bikes a year, each e-bike contributes TWD 7,000, so the line earns about TWD 200 million a year after TWD 150 million of fixed running cost. It pays back the TWD 600 million investment in 3 years and has an NPV of about TWD 550 million over its 8-year life. Slide 2, the main risks: first, volume, because NPV falls to zero at about 36,000 e-bikes a year, about 27 percent below plan; second, the largest export market, which takes 40 percent of sales, because a new import duty that forces a TWD 4,000 price cut on 20,000 e-bikes cuts yearly cash to TWD 120 million, cuts NPV to about TWD 90 million and stretches payback to 5 years; third, leaving that market would be worse, with an NPV of about minus TWD 255 million, so absorbing the price cut is the better fallback. Motor and battery costs, about half of variable cost, add a further swing. Slide 3, how to reduce them: sign volume agreements with the largest distributors before committing the investment, grow sales in other markets so that no single market is 40 percent of sales, and design the line so it can also assemble regular bicycles if e-bike demand is weak. As a next step, ask the three largest distributors for signed volume ranges and get quotes for a flexible line.
Risks a strong answer names: Motor and battery prices can swing, and they are about half of variable cost; Rivals may cut prices if the export market shrinks for everyone.
Next steps: Ask the three largest distributors for signed volume ranges; Get quotes for a line that can switch between e-bikes and regular bicycles.
Strong versus weak
A strong answer
Led with the answer, showed NPV, payback, and break-even volume, and compared absorbing the duty with leaving the market.
A weak answer
Listed the data pack line by line and concluded "e-bikes are a growing market, so build," with no view on volume or the duty.
Score the candidate
Score each criterion from 1 to 5. A 2 or a 4 sits between the descriptions.
Total
0 out of 25
Score all five criteria to see the band and the feedback template.