List of top Questions asked in XAT- 2009

Caselet (Questions 101-104): Shekhar, an MBA from Singapore, returned to his hometown of Jamshedpur. Jamshedpur had a population of 10 lacs and one of the highest per capita incomes among Indian cities. Shekhar loved music. While listening to his favourite song on satellite radio one day, he wondered if he could combine his passion with a business. A few weeks later, by coincidence, Music World called for expressions of interest from potential franchisees. Jamshedpur did not have a single good music store where residents could buy quality, variety, and the latest releases.

Music World wanted its franchisees to own at least 1200 square feet of space and invest Rs. 30 lacs. Profits were to be split in the ratio of 3:7 between Music World and the franchisee. Shekhar liked the idea of working with a well-known brand, but he worried whether Rs. 30 lacs was too much money to put in. He did not have the full amount and was thinking of borrowing from a bank. He checked with other Music World franchisees in towns like Patna and Ranchi, expecting similar footfall in Jamshedpur. A franchisee in Patna reported monthly sales revenue of Rs. 1 to 2 lacs, with a profit margin of 25 to 30 percent. Satisfied with this, Shekhar decided to go ahead.

He then began looking for space. Jamshedpur had three main areas: Bistupur, Sakchi, and Sonari, all connected by good roads. Bistupur was a business area with most of the high-end retail stores, shopped at by the upper-middle and higher classes, and was also the city's education hub. Sakchi was a growing lower-middle-class business area, while Sonari was mostly residential.

Shekhar preferred Bistupur, since it was where he did his own shopping. But he ran into problems there: space was hard to find, and rentals had touched Rs. 30 to 40 per square foot per month, compared to Rs. 15 to 20 per square foot per month in Sakchi and Sonari. A friend who lived in Sakchi told him that several branded outlets were opening up there, and that it looked like the fastest-growing market in Jamshedpur with the highest share of teenagers. Still, Shekhar was against Sakchi because of its "downmarket" image. He wanted to target the college-going crowd, and he expected to find them in Bistupur.

The high real-estate cost in Bistupur, set against his low opinion of the Sakchi market, left Shekhar confused. To think the decision through properly, he decided to drive down the Jamshedpur-Ranchi highway in his newly bought car.

Question: Which one of the following is the most important decision criterion in such a business situation?

Caselet (Questions 101-104): Shekhar, an MBA from Singapore, returned to his hometown of Jamshedpur. Jamshedpur had a population of 10 lacs and one of the highest per capita incomes among Indian cities. Shekhar loved music. While listening to his favourite song on satellite radio one day, he wondered if he could combine his passion with a business. A few weeks later, by coincidence, Music World called for expressions of interest from potential franchisees. Jamshedpur did not have a single good music store where residents could buy quality, variety, and the latest releases.

Music World wanted its franchisees to own at least 1200 square feet of space and invest Rs. 30 lacs. Profits were to be split in the ratio of 3:7 between Music World and the franchisee. Shekhar liked the idea of working with a well-known brand, but he worried whether Rs. 30 lacs was too much money to put in. He did not have the full amount and was thinking of borrowing from a bank. He checked with other Music World franchisees in towns like Patna and Ranchi, expecting similar footfall in Jamshedpur. A franchisee in Patna reported monthly sales revenue of Rs. 1 to 2 lacs, with a profit margin of 25 to 30 percent. Satisfied with this, Shekhar decided to go ahead.

He then began looking for space. Jamshedpur had three main areas: Bistupur, Sakchi, and Sonari, all connected by good roads. Bistupur was a business area with most of the high-end retail stores, shopped at by the upper-middle and higher classes, and was also the city's education hub. Sakchi was a growing lower-middle-class business area, while Sonari was mostly residential.

Shekhar preferred Bistupur, since it was where he did his own shopping. But he ran into problems there: space was hard to find, and rentals had touched Rs. 30 to 40 per square foot per month, compared to Rs. 15 to 20 per square foot per month in Sakchi and Sonari. A friend who lived in Sakchi told him that several branded outlets were opening up there, and that it looked like the fastest-growing market in Jamshedpur with the highest share of teenagers. Still, Shekhar was against Sakchi because of its "downmarket" image. He wanted to target the college-going crowd, and he expected to find them in Bistupur.

The high real-estate cost in Bistupur, set against his low opinion of the Sakchi market, left Shekhar confused. To think the decision through properly, he decided to drive down the Jamshedpur-Ranchi highway in his newly bought car.

Question: What could be the most likely reason for Shekhar's bias in favour of Bistupur?

Caselet (Questions 97-100): Om Chowdhury was one of the supervisors in the Fire and Safety (F&S) department of Maqsood Textile Mills. He was a distant cousin of Mr. Bhiwani, the General Manager (Personnel & Administration), and the Personnel and Administration department handled all personnel-related decisions. It was often rumored that Om had gotten the job because of his cousin's influence. Om, however, was careful in his work and never gave anyone a reason to complain. He was known to be a quiet man who kept to himself and his duties.

All F&S supervisors reported to Mr. Rabindra, the shop-floor manager. The mill ran on a three-shift basis, and Rabindra allotted supervisors to the different shifts. Supervisors had to stay present through the whole shift and run scheduled checks on the machinery and firefighting equipment. For some reason, Rabindra kept assigning Om to the night shift more often than the other supervisors. Om never objected to this, while the other supervisors often pleaded with Rabindra to be given day shifts instead. Staying awake and alert through the night shift was one of the hardest parts of the job.

After a while, Rabindra noticed that Om seemed indifferent to his work. Twice he found Om missing from his cabin, and others told him Om had been seen wandering different parts of the shop floor. Rabindra called Om in and reminded him of his responsibilities. Om did not argue and promised not to be careless again. Rabindra also raised the matter with Mr. Bhiwani, who called Om in for a personal talk and reminded him that their family tie made the situation awkward for everyone. Om agreed to improve, and soon he became a model supervisor, even going out of his way to help employees with their problems.

Three months later, Rabindra visited the plant at night and, looking into the F&S office, found Om playing solitaire on the office computer. Rabindra fired Om on the spot.

The next morning, Mr. Bhiwani called Rabindra and asked how he could fire an employee like that, and suggested he reconsider the dismissal. Rabindra replied, "This decision has already been made. There will be no turning back."

Question: Out of the options below, which one best sums up the learning from the solitaire incident?

Caselet (Questions 97-100): Om Chowdhury was one of the supervisors in the Fire and Safety (F&S) department of Maqsood Textile Mills. He was a distant cousin of Mr. Bhiwani, the General Manager (Personnel & Administration), and the Personnel and Administration department handled all personnel-related decisions. It was often rumored that Om had gotten the job because of his cousin's influence. Om, however, was careful in his work and never gave anyone a reason to complain. He was known to be a quiet man who kept to himself and his duties.

All F&S supervisors reported to Mr. Rabindra, the shop-floor manager. The mill ran on a three-shift basis, and Rabindra allotted supervisors to the different shifts. Supervisors had to stay present through the whole shift and run scheduled checks on the machinery and firefighting equipment. For some reason, Rabindra kept assigning Om to the night shift more often than the other supervisors. Om never objected to this, while the other supervisors often pleaded with Rabindra to be given day shifts instead. Staying awake and alert through the night shift was one of the hardest parts of the job.

After a while, Rabindra noticed that Om seemed indifferent to his work. Twice he found Om missing from his cabin, and others told him Om had been seen wandering different parts of the shop floor. Rabindra called Om in and reminded him of his responsibilities. Om did not argue and promised not to be careless again. Rabindra also raised the matter with Mr. Bhiwani, who called Om in for a personal talk and reminded him that their family tie made the situation awkward for everyone. Om agreed to improve, and soon he became a model supervisor, even going out of his way to help employees with their problems.

Three months later, Rabindra visited the plant at night and, looking into the F&S office, found Om playing solitaire on the office computer. Rabindra fired Om on the spot.

The next morning, Mr. Bhiwani called Rabindra and asked how he could fire an employee like that, and suggested he reconsider the dismissal. Rabindra replied, "This decision has already been made. There will be no turning back."

Question: The details of the entire episode have become common knowledge among all the employees of the company. Out of the options below, which one presents the best way for the top management to resolve the issue so as to benefit the organization as a whole?

Caselet (Questions 97-100): Om Chowdhury was one of the supervisors in the Fire and Safety (F&S) department of Maqsood Textile Mills. He was a distant cousin of Mr. Bhiwani, the General Manager (Personnel & Administration), and the Personnel and Administration department handled all personnel-related decisions. It was often rumored that Om had gotten the job because of his cousin's influence. Om, however, was careful in his work and never gave anyone a reason to complain. He was known to be a quiet man who kept to himself and his duties.

All F&S supervisors reported to Mr. Rabindra, the shop-floor manager. The mill ran on a three-shift basis, and Rabindra allotted supervisors to the different shifts. Supervisors had to stay present through the whole shift and run scheduled checks on the machinery and firefighting equipment. For some reason, Rabindra kept assigning Om to the night shift more often than the other supervisors. Om never objected to this, while the other supervisors often pleaded with Rabindra to be given day shifts instead. Staying awake and alert through the night shift was one of the hardest parts of the job.

After a while, Rabindra noticed that Om seemed indifferent to his work. Twice he found Om missing from his cabin, and others told him Om had been seen wandering different parts of the shop floor. Rabindra called Om in and reminded him of his responsibilities. Om did not argue and promised not to be careless again. Rabindra also raised the matter with Mr. Bhiwani, who called Om in for a personal talk and reminded him that their family tie made the situation awkward for everyone. Om agreed to improve, and soon he became a model supervisor, even going out of his way to help employees with their problems.

Three months later, Rabindra visited the plant at night and, looking into the F&S office, found Om playing solitaire on the office computer. Rabindra fired Om on the spot.

The next morning, Mr. Bhiwani called Rabindra and asked how he could fire an employee like that, and suggested he reconsider the dismissal. Rabindra replied, "This decision has already been made. There will be no turning back."

Question: Of the options below, which could have been a better response from Mr. Rabindra when he saw Om playing solitaire?

Caselet (Questions 101-104): Shekhar, an MBA from Singapore, returned to his hometown of Jamshedpur. Jamshedpur had a population of 10 lacs and one of the highest per capita incomes among Indian cities. Shekhar loved music. While listening to his favourite song on satellite radio one day, he wondered if he could combine his passion with a business. A few weeks later, by coincidence, Music World called for expressions of interest from potential franchisees. Jamshedpur did not have a single good music store where residents could buy quality, variety, and the latest releases.

Music World wanted its franchisees to own at least 1200 square feet of space and invest Rs. 30 lacs. Profits were to be split in the ratio of 3:7 between Music World and the franchisee. Shekhar liked the idea of working with a well-known brand, but he worried whether Rs. 30 lacs was too much money to put in. He did not have the full amount and was thinking of borrowing from a bank. He checked with other Music World franchisees in towns like Patna and Ranchi, expecting similar footfall in Jamshedpur. A franchisee in Patna reported monthly sales revenue of Rs. 1 to 2 lacs, with a profit margin of 25 to 30 percent. Satisfied with this, Shekhar decided to go ahead.

He then began looking for space. Jamshedpur had three main areas: Bistupur, Sakchi, and Sonari, all connected by good roads. Bistupur was a business area with most of the high-end retail stores, shopped at by the upper-middle and higher classes, and was also the city's education hub. Sakchi was a growing lower-middle-class business area, while Sonari was mostly residential.

Shekhar preferred Bistupur, since it was where he did his own shopping. But he ran into problems there: space was hard to find, and rentals had touched Rs. 30 to 40 per square foot per month, compared to Rs. 15 to 20 per square foot per month in Sakchi and Sonari. A friend who lived in Sakchi told him that several branded outlets were opening up there, and that it looked like the fastest-growing market in Jamshedpur with the highest share of teenagers. Still, Shekhar was against Sakchi because of its "downmarket" image. He wanted to target the college-going crowd, and he expected to find them in Bistupur.

The high real-estate cost in Bistupur, set against his low opinion of the Sakchi market, left Shekhar confused. To think the decision through properly, he decided to drive down the Jamshedpur-Ranchi highway in his newly bought car.

Question: How best should Shekhar resolve his confusion?

Caselet (Questions 101-104): Shekhar, an MBA from Singapore, returned to his hometown of Jamshedpur. Jamshedpur had a population of 10 lacs and one of the highest per capita incomes among Indian cities. Shekhar loved music. While listening to his favourite song on satellite radio one day, he wondered if he could combine his passion with a business. A few weeks later, by coincidence, Music World called for expressions of interest from potential franchisees. Jamshedpur did not have a single good music store where residents could buy quality, variety, and the latest releases.

Music World wanted its franchisees to own at least 1200 square feet of space and invest Rs. 30 lacs. Profits were to be split in the ratio of 3:7 between Music World and the franchisee. Shekhar liked the idea of working with a well-known brand, but he worried whether Rs. 30 lacs was too much money to put in. He did not have the full amount and was thinking of borrowing from a bank. He checked with other Music World franchisees in towns like Patna and Ranchi, expecting similar footfall in Jamshedpur. A franchisee in Patna reported monthly sales revenue of Rs. 1 to 2 lacs, with a profit margin of 25 to 30 percent. Satisfied with this, Shekhar decided to go ahead.

He then began looking for space. Jamshedpur had three main areas: Bistupur, Sakchi, and Sonari, all connected by good roads. Bistupur was a business area with most of the high-end retail stores, shopped at by the upper-middle and higher classes, and was also the city's education hub. Sakchi was a growing lower-middle-class business area, while Sonari was mostly residential.

Shekhar preferred Bistupur, since it was where he did his own shopping. But he ran into problems there: space was hard to find, and rentals had touched Rs. 30 to 40 per square foot per month, compared to Rs. 15 to 20 per square foot per month in Sakchi and Sonari. A friend who lived in Sakchi told him that several branded outlets were opening up there, and that it looked like the fastest-growing market in Jamshedpur with the highest share of teenagers. Still, Shekhar was against Sakchi because of its "downmarket" image. He wanted to target the college-going crowd, and he expected to find them in Bistupur.

The high real-estate cost in Bistupur, set against his low opinion of the Sakchi market, left Shekhar confused. To think the decision through properly, he decided to drive down the Jamshedpur-Ranchi highway in his newly bought car.

Question: Suppose sales in Patna and Bistupur are likely to be the same, how many years would it take for Shekhar to recoup the investment (consider zero inflation)?

Caselet (Questions 97-100): Om Chowdhury was one of the supervisors in the Fire and Safety (F&S) department of Maqsood Textile Mills. He was a distant cousin of Mr. Bhiwani, the General Manager (Personnel & Administration), and the Personnel and Administration department handled all personnel-related decisions. It was often rumored that Om had gotten the job because of his cousin's influence. Om, however, was careful in his work and never gave anyone a reason to complain. He was known to be a quiet man who kept to himself and his duties.

All F&S supervisors reported to Mr. Rabindra, the shop-floor manager. The mill ran on a three-shift basis, and Rabindra allotted supervisors to the different shifts. Supervisors had to stay present through the whole shift and run scheduled checks on the machinery and firefighting equipment. For some reason, Rabindra kept assigning Om to the night shift more often than the other supervisors. Om never objected to this, while the other supervisors often pleaded with Rabindra to be given day shifts instead. Staying awake and alert through the night shift was one of the hardest parts of the job.

After a while, Rabindra noticed that Om seemed indifferent to his work. Twice he found Om missing from his cabin, and others told him Om had been seen wandering different parts of the shop floor. Rabindra called Om in and reminded him of his responsibilities. Om did not argue and promised not to be careless again. Rabindra also raised the matter with Mr. Bhiwani, who called Om in for a personal talk and reminded him that their family tie made the situation awkward for everyone. Om agreed to improve, and soon he became a model supervisor, even going out of his way to help employees with their problems.

Three months later, Rabindra visited the plant at night and, looking into the F&S office, found Om playing solitaire on the office computer. Rabindra fired Om on the spot.

The next morning, Mr. Bhiwani called Rabindra and asked how he could fire an employee like that, and suggested he reconsider the dismissal. Rabindra replied, "This decision has already been made. There will be no turning back."

Question: The options below give combinations of a possible root cause of the problem and its justification. Given the details in the case, which one can be inferred to be the best option?

Decisions are often 'risky' in the sense that their outcomes are not known with certainty. Presented with a choice between a risky prospect that offers a 50 percent chance to win $200 (otherwise nothing) and an alternative of receiving $100 for sure, most people prefer the sure gain over the gamble, although the two prospects have the same expected value. (Expected value is the sum of possible outcomes weighted by their probability of occurrence.) Preference for a sure outcome over a risky prospect of equal expected value is called risk averse; indeed, people tend to be risk averse when choosing between prospects with positive outcomes. The tendency towards risk aversion can be explained by the notion of diminishing sensitivity, first formalized by Daniel Bernoulli in 1738. Just as the impact of a candle is greater when it is brought into a dark room than into a room that is well lit, so, suggested Bernoulli, the utility resulting from a small increase in wealth will be inversely proportional to the amount of wealth already in one's possession. It has since been assumed that people have a subjective utility function, and that preferences should be described using expected utility instead of expected value. According to expected utility, the worth of a gamble offering a 50 percent chance to win $200 (otherwise nothing) is \(0.50 \times u(200)\), where \(u\) is the person's concave utility function. (A function is concave or convex if a line joining two points on the curve lies entirely below or above the curve, respectively.) It follows from a concave function that the subjective value attached to a gain of $100 is more than 50 percent of the value attached to a gain of $200, which gives a preference for the sure $100 gain and, hence, risk aversion.

Consider now a choice between losses. When asked to choose between a prospect that offers a 50 percent chance to lose $200 (otherwise nothing) and the alternative of losing $100 for sure, most people prefer to take an even chance at losing $200 or nothing over a sure $100 loss. This is because diminishing sensitivity applies to negative as well as to positive outcomes: the impact of an initial $100 loss is greater than that of the next $100. This gives a convex function for losses and a preference for risky prospects over sure outcomes of equal expected value, called risk seeking. Except for prospects that involve very small probabilities, risk aversion is generally seen in choices involving gains, while risk seeking tends to hold in choices involving losses.

Based on the above passage, look at the decision situations faced by three persons: Babu, Babitha and Bablu.

Suppose the instant and further utility of each unit of gain is the same for Babu. Babu has decided to play as many times as possible before he dies. He expects to live for another 50 years. A game does not last more than ten seconds. Babu is confused about which theory to trust for making his decision and seeks the help of a renowned decision making consultant, Roy Associates. What should Roy Associates' advice to Babu be?