Free CIMA Strategic Case Study Exam CIMAPRO19-CS3-1 Exam Questions

Six months have passed since you briefed William Seaton, Director of Finance on the relationship between Slide and Fouce Oil.

You have been called into William Seaton's office:

''We had a visit from the Chief Executive Officer of Fouce Oil yesterday. We had not received any prior notice of the purpose of the visit and assumed that he simply wished to make a courtesy call while he was visiting Fouce Oil's subsidiary in this country. Instead, he came to initiate discussions over a strategy of collaboration on oil exploration.

Rather than explain things myself, please read the memorandum of understanding that he has asked us to sign. It is self-explanatory.

Once you have read the memorandum, I would like you to email me your thoughts on the following:

The suitability of this proposal for Slide.

The likelihood that Fouce Oil's strategic interests will clash with our own.

The strategic risks that are likely to arise because of this arrangement.

The manner in which this strategic relationship should be communicated to the stock market.

I realise that this is a challenging request, but I need your response quickly because we need to respond to Fouce Oil.''

The Memorandum of Understanding can be found by clicking on the Reference Materials button.

A further eight weeks have passed since the discussion concerning Wodd's creation of an accredited Forest Certification Service.

Wodd's Chairman has asked you to a meeting:

"I thought that we had a lucky escape over the Barry Crauder story from a recent news article, but the Government is considering modifying the tax arrangements associated with forestry. Professional forestry companies such as Wodd will continue to pay no tax on forestry profits, but private individuals such as Mr Crauder will be taxed on profits just as they would for any other business. The Government is taking this action because public opinion is against granting generous tax relief to wealthy individuals.

For the moment, this is all highly secret. The minister responsible for forestry has spoken to the chairmen of all of the major forestry companies on the basis that each gives a personal guarantee to respect the Government's confidence. The minister has done so because she is concerned that stock markets will panic when the news of the tax changes are announced next week. If the shareholders incorrectly believe that we will lose the tax shield on our profits then the share price will drop like a stone. We will be able to announce that we are aware of the changes and that we will not be taxed differently because of them.

I have spoken to the Board about this, making them promise not to repeat any of this information. We have called in and briefed the key analysts who advise the main institutional investors in Marland on the forestry industry.

As things stand, we can expect a lot of the wealthy individuals who own forests to divest themselves as soon as they discover that there are no more tax incentives. That will have significant implications for Wodd, both directly and indirectly.

The Board believes that the markets will overreact when the tax changes are first announced and that we will be unable to do much to manage that. One suggestion that has been put forward is that we should increase the dividend slightly as a signal that we are confident in the future strength of the industry. I suspect that the executive directors are just a little too concerned with the fact that they all have stock options that can only be exercised on a date that falls just after the government is due to announce its intentions on tax.

I need your thoughts in order to have an independent viewpoint from that voiced by the Board:

What effect will the tax changes have on our business?

Do you agree that briefing the analysts will mitigate the risk of our share price overreacting when the tax changes are announced?

Will the additional dividend payment help to maintain the share price?

Is granting executive stock options always a sound basis for aligning the interests of the executive directors and the shareholders?"

From: Martin Wills, Head Geologist

To: William Seaton, Director of Finance

Subject: Reserves

Hi William,

I have reviewed the situation with respect to our ''probable'' or ''2P'' reserves, as disclosed in our latest annual report. I am sorry to say that we have to downgrade our figures with respect to reserves. I am recommending that all extraction activities cease for the foreseeable future on the North Atlantic and South Atlantic fields and that the proved reserves be downgraded from proved to probable.

I have to stress that this is not attributable to any past error on the part of the geologists. The world oil price has been depressed and the discovery of large deposits of shale oil in the USA suggests that the oil price will not recover for some time. That means that some oil wells that were commercially viable this time last year are no longer worth processing.

The oil remains under the rock and I have no doubt that we will restore operations in the long term.

We are by no means the only oil company to have been forced to take this action.

The one piece of good news is that the financial statements for the year ended 31 December 2014 have already been published. My understanding is that we do not have to withdraw them, so unless you put an advertisement in the press, we can carry on quietly trying to sort this mess out.

I have my best people working on ways to extract oil from our wells more efficiently, so we may be able to increase production over the next year or so.

Martin

You have received the following email from Peter Sorchi, CEO:

From: Peter Sorchi, Chief Executive Officer

To: Senior Finance Manager

Fwd: Tax avoidance article

Hi,

I am forwarding you an email from a journalist. It came in via our press office, who passed it up the management chain and it ended up in my inbox.

Some of the basic facts stated in the draft article are correct:

We do have arrangements in place with leading tax advisers for referrals of potential clients. We pay a commission for all such referrals, which the tax adviser is required to disclose to the client.

Barry Crauder has been one of our largest clients for many years. He owns significant forested land and we manage that in return for our usual fee.

We do not offer tax advice, or promote forestry as a tax-efficient investment. We simply offer a forestry management service as a paid service.

I would like you to address the following issues and I need your reply as a matter of some urgency.

Could we be accused of behaving unethically with respect to this aspect of our forestry management service?

Please draft a response that we can submit to Sonia Jones. Please also give an explanation for the Board as to how you will address the fact that the draft newspaper article clearly makes us appear to be unethical. We will consider your draft and related comments at a meeting this afternoon, before submitting anything.

Peter

To: Press Office, Wodd

From: Sonia Jones, reporter, Daily Gazette

Re: Tax avoidance article

I am seeking a response from Wodd concerning the activities of the celebrity Barry Crauder. We have established that Mr Crauder has been investing heavily in forestry in order to avoid paying tax on the considerable wealth that he has amassed from his show business career.

We believe that a significant part of this story is the relationship between forestry companies such as Wodd and professional tax advisers. When researching this story I posed as a wealthy investor and approached several firms that specialise in offering tax avoidance advice to high net worth individuals. Four of the firms whom I approached recommended a forestry scheme and specifically recommended Wodd to manage it for me. I believe that Wodd has a close relationship with these firms and possibly others.

I have attached a draft of my story. I have sufficient evidence to support every fact stated. I am writing in order to give Wodd the opportunity to respond if it wishes to do so, although the story will run regardless. I will require your comment within 48 hours, otherwise, I will run the story as it stands.

Sonia Jones

Chief reporter, Daily Gazette

Six months have passed since you first heard of the possibility that Slide might relocate its Head Office to the Middle East.

You have been called into William Seaton, the Director of Finance's office:

''After lots of deliberation, the Board has reached a final decision on the Head Office move. It has been decided that we will relocate to the Middle East.

I need you to draft a report on the following matters:

First of all, we need a strategy for the choice of country to which we are going to relocate. I need you to think about the strategic decisions that will have to be taken so that we obtain the best possible value from the relocation.

Secondly, we have to think about the change management issues with respect to Slide's senior managers. We have a good team of senior managers and Board members and we wish to see them relocate with the company. I need your thoughts on this.

Thirdly, there will be significant change issues for the other staff members. We cannot justify moving all of them to the Middle East, but we will be relying on them to ensure an orderly transition from the current Head Office to the new one. They will be busy for several months, then most will be made redundant. The rest will be offered new jobs with Slide because we will need a scaled down administrative presence in Kayland. Again, I need your suggestions for this.

Finally, we need to put together a transition team to deal with the many administrative issues that the move will create. I need you to suggest a clear job description for the transition team that explains the main operational tasks required, so that the directors can be left free to focus on the strategic management.''

Daily Gazette

Draft story for comment

The singer, the forester and the tax adviser

Popular singer Barry Crauder is regarded as one of our more financially-aware personalities. He works hard, releasing at least one new album every year and serving as a judge on a popular talent show. He has a reputation for investing this income wisely, choosing to save for his future rather than squandering on the trappings of the show business lifestyle.

Crauder's popularity was severely damaged when it emerged that he pays little or no tax on the investment income derived from his portfolio of investments. That is because he has used one of the few remaining tax loopholes, namely investment in forestry. He owns significant areas of forestry in the far North of Marland. We estimate his earnings from those investments to exceed M$800,000 every year and yet he has not paid a single Cent in tax on that income since he first invested in forestry ten years ago. In contrast, a typical fan who earns the national average wage of M$28,000 every year will pay approximately M$7,000 in tax.

So, could we all invest in forestry? Well, not unless we can afford it. I posed as a wealthy business entrepreneur and approached several leading tax advisers. Most were interested in helping me to invest a seven figure sum to avoid tax, but warned that saving tax could be expensive in terms of fees and commissions.

Four firms recommended forestry as the ideal investment. All recommended Wodd, with whom all four claimed to conduct "significant business". They said that a typical client would give Wodd a bank draft and leave the purchase and subsequent management to Wodd in return for a fee. Most clients had never even seen the forests that they own and none ever need to make a management decision concerning the growth or sale of timber.

Sadly, investing in forestry is a rich person's pursuit. I was warned that companies such as Wodd are unlikely to entertain a potential client whose initial investment does not run into the tens of millions of M$.

Please address any response to Sonia Jones, care of the Daily Gazette news desk, as quickly as possible.