Financial Analysis puzzles, solved step by step

Puzzles
100
Traced to a firm
47
Topics
13
Hard
30
Topic
All topicsAccounting flow riddles10Valuation and multiples riddles10Ratio and margin riddles8Cost of capital, leverage and rates8Compounding and time value8Mental maths8Probability and expected value9Working capital and cash riddles6Percentages and averages7Estimation and market sizing7Logic and counting brainteasers7Pricing, costing and unit economics6Data and statistics intuition6
Level
AnyWarm upCoreHard
Source
AnyReported at a firmStandard
Showing 1–1 of 1 · filtered from 100Clear filters
  1. 005A dairy cow gives 10 litres of milk a day for 300 days a year. Milk sells at Rs 40 a litre and the cow costs Rs 70,000 a year to keep. It will produce for 6 more years and then be sold to another farm for Rs 20,000. At a 12% required return, what would you pay for the cow?Compounding and time valueCoreRothschild & CoNew York · 2026

    Try it first

    Before discounting, what is the cow's net cash each year?

    Show the worked solution

    About Rs 2.16 lakh. The cow earns Rs 1,20,000 of milk a year and costs Rs 70,000, leaving Rs 50,000 of net cash for six years. At 12% that stream is worth about Rs 2,05,570, and the Rs 20,000 sale in year 6 adds about Rs 10,133. Paying more than about Rs 2,16,000 means earning less than 12% on the purchase.

    How do you value something that is not a company?

    The same way you value a company. A shop, a flat you rent out and a cow are all machines that turn money in now into money out later. Anything that produces cash can be valued as the present value of the cash it will hand you, after the costs of keeping it running. So the first job is to find the net cash each year, then the life, then the value left at the end.

    Net cash: 10 litres a day for 300 days is 3,000 litres, worth Rs 1,20,000 at Rs 40. Upkeep of Rs 70,000 leaves Rs 50,000 a year. The six years and the Rs 20,000 sale at the end complete the cash flows.

    Each year's Rs 50,000, and what it is worth today at 12%44,64350,000Year 139,86050,000Year 235,58950,000Year 331,77650,000Year 428,37150,000Year 525,332+20,000 sale10,133Year 6present value at 12%cash received that yearSum of thefilled barsRs 2.16lakh
    The cow's Rs 50,000 of yearly net cash is worth Rs 44,643 today in year 1 but only Rs 25,332 in year 6, and the Rs 20,000 sale is worth Rs 10,133. Added up, the cow is worth about Rs 2.16 lakh at 12%.
    The relationship
    V=50,000×1−1.12−60.12+20,0001.126=50,000×4.111+10,133≈215,703V = 50{,}000 \times \frac{1 - 1.12^{-6}}{0.12} + \frac{20{,}000}{1.12^{6}} = 50{,}000 \times 4.111 + 10,133 \approx 215,703
    50,000net cash each year, Rs
    4.111the six-year annuity factor at 12%
    20,000sale value at the end of year 6, Rs
    What it says in wordsValue is the six equal yearly cash flows discounted as an annuity, plus the final sale discounted six years.

    What would make you pay less?

    Every assumption in this answer is a risk to price: yield falling with age, illness, milk price, feed cost. If milk yield drops 10% a year, net cash falls fast because upkeep does not fall with it, and the value drops sharply. A higher required return for a risky asset does the same. The interviewer who asks you to value an animal is checking that you name the cash, the life, the end value and the risk, in that order, and do not stop at the milk bill.

    Where candidates lose it

    The common slip is discounting Rs 1,20,000 of milk sales instead of Rs 50,000 of net cash, which more than doubles the answer. Revenue is not what the owner keeps.

    The second is forgetting the end value, or adding it undiscounted. Rs 20,000 in six years is worth about Rs 10,000 today at 12%, and saying so shows you treat every cash flow the same way.

    What the interviewer asks next

    • Milk yield falls 10% a year from year 2. What is the cow worth now?
    • What discount rate would you use, and why might it be higher than for a bond?
    • How would you value a pet dog, which produces no cash?

    Asked at Rothschild & Co, Generalist, New York, 2026 (Wall Street Oasis): How would you value your favorite animal? What is your personal beta?