Interviewer view · keep this screen to yourself
A sorting machine for a Singapore warehouse
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.
A Singapore logistics company can buy a warehouse sorting machine for SGD 240,000. It would cut costs by SGD 80,000 a year for six years, with no value at the end. The company's cost of capital is 10 percent a year. The table below compares the machine with the other use of the same budget. Is it worth buying?
The prompt refers to Exhibit 1. After reading it, say: "Open Exhibit 1 now."
Format note: Interviewer-led: the interviewer shows the two options and asks for payback, then NPV, then the IRR, and then which option to fund.
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: Are the savings after running costs such as maintenance and power?
Answer: Yes, they are net savings.
If asked: What else could the money be used for?
Answer: A software upgrade with an expected return of about 15 percent a year.
If asked: Does the machine have any value at the end?
Answer: No.
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.
A three-year payback on a six-year machine looks healthy. My hypothesis is that it clears the 10 percent cost of capital comfortably, and that the real question is whether it beats the 15 percent software alternative.
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.
- Payback, NPV, and IRR versus the alternatives
- Payback
- Key: NPV at the 10 percent cost of capital
- IRR versus the 15 percent alternative
Exhibit 1
The prompt uses this exhibit, so the candidate opens it right after you read the prompt ("Show exhibit 1" on their screen).
| Option | Upfront cost (SGD) | Yearly benefit | Life (years) |
|---|---|---|---|
| Sorting machine | 240,000 | SGD 80,000 of net savings a year, no value at the end | 6 |
| Software upgrade | 240,000 | About 15 percent return a year | Not stated |
So-what
Both options use the same budget, so the machine must beat the software upgrade's 15 percent, not only the 10 percent cost of capital.
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: Payback
What a strong candidate does: SGD 240,000 against SGD 80,000 saved a year.
Payback (years): 240,000 ÷ 80,000 = 3
Step 2: Savings before discounting
What a strong candidate does: SGD 80,000 a year for six years, twice the cost. This is a 2 times cash multiple (a 100 percent net gain), but it ignores the time value of money.
Undiscounted savings (SGD): 80,000 × 6 = 480,000
Step 3: Present value at 10 percent
What a strong candidate does: Divide each year's saving by 1.1 once per year of waiting (1.21 is 1.1 x 1.1, and so on).
Present value of savings (SGD): 80,000 ÷ 1.1 + 80,000 ÷ 1.21 + 80,000 ÷ 1.331 + 80,000 ÷ 1.4641 + 80,000 ÷ 1.61051 + 80,000 ÷ 1.771561 = 348,421
Step 4: NPV
What a strong candidate does: Present value of savings minus the cost.
NPV at 10 percent (SGD): 348,420.86 - 240,000 = 108,421
Step 5: Bracket the IRR: try 24 percent
What a strong candidate does: At 24 percent the savings are still worth slightly more than the SGD 240,000 cost.
Present value at 24 percent (SGD): 80,000 ÷ 1.24 + 80,000 ÷ (1.24 × 1.24) + 80,000 ÷ (1.24 × 1.24 × 1.24) + 80,000 ÷ (1.24 × 1.24 × 1.24 × 1.24) + 80,000 ÷ (1.24 × 1.24 × 1.24 × 1.24 × 1.24) + 80,000 ÷ (1.24 × 1.24 × 1.24 × 1.24 × 1.24 × 1.24) = 241,638
Step 6: Bracket the IRR: try 25 percent
What a strong candidate does: At 25 percent they are worth slightly less than the cost, so the IRR is about 24 percent.
Present value at 25 percent (SGD): 80,000 ÷ 1.25 + 80,000 ÷ (1.25 × 1.25) + 80,000 ÷ (1.25 × 1.25 × 1.25) + 80,000 ÷ (1.25 × 1.25 × 1.25 × 1.25) + 80,000 ÷ (1.25 × 1.25 × 1.25 × 1.25 × 1.25) + 80,000 ÷ (1.25 × 1.25 × 1.25 × 1.25 × 1.25 × 1.25) = 236,114
The recommendation to listen for
At the end, say: "The CEO walks in. What is your recommendation?"
I recommend buying the machine. First, it pays back in three years, and its savings are worth about SGD 348,000 in today's money against a cost of SGD 240,000, an NPV of about SGD 108,000 at the 10 percent cost of capital. Second, its IRR is about 24 percent, above both the cost of capital and the 15 percent software alternative. Third, savings could fall by about 30 percent before the NPV reaches zero. Confirm the savings at a reference site before signing.
Risks a strong answer names: Savings may be lower if volumes fall; Maintenance costs may rise in later years.
Next steps: Visit a reference site using the same machine; Negotiate a performance guarantee with the supplier.
Strong versus weak
A strong answer
Computed payback, NPV, and a bracketed IRR, and compared the return with both the cost of capital and the alternative.
A weak answer
Said yes because it "saves 80,000 a year" and "doubles the money," without discounting or comparing.
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.