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Does a cement plant expansion create value?

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

Target length:

1. Read the prompt aloud

Read it slowly, then pause. Let the candidate ask questions before they structure.

A cement producer in the UAE (fictional, AED millions) earns EBIT of 150 on invested capital of 1,000. Tax is 20 percent (illustrative). It is funded 60 percent by equity, which costs 12 percent, and 40 percent by debt at 6 percent before tax. Management wants to invest another 500 in a new line expected to earn a return of 7 percent after tax. Does the company create value today, and would the expansion add to it?

2. Answers to clarifying questions

This case has no scripted clarifying answers. Answer from the prompt, and say "assume what you think is reasonable" if the prompt does not cover it.

3. 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 created each year = (ROIC minus WACC) x invested capital (this comes from the question: does the return beat the cost?)
- ROIC today: NOPAT divided by invested capital
- WACC: the weighted after-tax cost of debt and cost of equity
- Value created today, and by the expansion

4. 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: NOPAT
What a strong candidate does: EBIT 150 after 20 percent tax.
NOPAT (AED millions): 150 × 0.8 = 120
Step 2: ROIC
What a strong candidate does: NOPAT divided by invested capital of 1,000.
ROIC (percent): 120 ÷ 1,000 × 100 = 12
Step 3: After-tax cost of debt
What a strong candidate does: Interest of 6 percent, less the 20 percent tax saving.
After-tax cost of debt (percent): 6 × (1 - 0.2) = 4.8
Step 4: WACC
What a strong candidate does: 60 percent at 12, plus 40 percent at 4.8.
WACC (percent): 0.6 × 12 + 0.4 × 4.8 = 9.12
Step 5: Value created today
What a strong candidate does: The spread of 12 minus 9.12 on capital of 1,000. This is often called economic profit.
Economic profit today (AED millions): (12 - 9.12) ÷ 100 × 1,000 = 28.8
Step 6: The expansion
What a strong candidate does: A return of 7 percent on 500, against a cost of 9.12 percent.
Economic profit of the expansion (AED millions): (7 - 9.12) ÷ 100 × 500 = -10.6

The recommendation to listen for

At the end, say: "The CEO walks in. What is your recommendation?"

The company creates value today, but the expansion as planned would destroy it. Today it earns a 12 percent return against a cost of capital of about 9.1 percent, which is about AED 29 million a year of value above the cost. The new line would earn 7 percent on 500 million, below its cost, which means about AED 10.6 million a year of value lost even though it adds profit. The risk in the analysis is the 7 percent estimate itself: a higher cement price could lift it. As a next step, find what price or cost level would take the new line above 9.1 percent before approving it.

Risks a strong answer names: The cost of equity is an estimate, not a bill, so test a range; A cement price change moves both returns.

Score the candidate

Score each criterion from 1 to 5. A 2 or a 4 sits between the descriptions.

This case has no exhibit. Score Exhibit reading on how the candidate used the data you gave them: did they pick out the number that matters and say what it means?

Structuring

1: No clear structure, or a memorized framework that does not fit the problem.
3: A sensible structure, but with some overlap, a gap, or no clear priority.
5: A structure built for this problem, with no overlap and no gaps, a stated hypothesis, and a clear first step.

Math

1: Frequent errors, no units, or needed heavy help to finish.
3: Right answers but slow or messy working, or one error caught late.
5: Accurate and clearly narrated, with units, a sense check, and what the number means.

Exhibit reading

1: Read the chart aloud without finding the number that matters.
3: Found the key number but gave only part of the so-what.
5: Pulled the right number quickly and said what it means for the case.

Synthesis

1: Summarized what was done, with no clear answer.
3: Gave an answer, but with weak reasons or no next step.
5: Answer first, then two or three reasons with numbers, the main risk, and next steps.

Communication

1: Hard to follow: long silences, no signposting.
3: Clear most of the time, with some rambling.
5: Calm and concise, signposted each step, and checked in with the interviewer.

Total

0 out of 25

Score all five criteria to see the band and the feedback template.