Most Recent CIMAPRO19-CS3-1 Exam Questions & Answers

You have received the following email from Marcus Svenson, Finance Director:

From: Marcus Svenson, Finance Director

To: Senior Finance Manager

Subject: Biomass proposal

Hi,

The Board has just heard a presentation by an engineering consultancy concerning a proposal to develop a biomass power station adjacent to our North Forest.

The Board has asked us to put together some thoughts about the merits of this proposal. We would proceed on the basis that we would build the power station and sell the resulting electricity to the national power generator which has a number of coal-fired power stations, each of which is nearing the end of its useful life and the coal has to be shipped in, so we should find it relatively easy to guarantee sales. The power generator has indicated that it would be possible to negotiate a three year contract in the first instance, with the expectation that this would be extended by subsequent three year contracts, subject to price and performance.

We would be responsible for building and operating the power plant and we would also have to pay for 50% of the cost of power lines for connecting to the national electricity grid, with the other 50% being funded by the national power generator.

Please draft a briefing paper that I can present to the Board on the following:

How can we predict whether the share price is likely to increase or decrease if we commit ourselves to this project? You should identify the challenges associated with answering that question and indicate how we might address them.

What are the long-term risks associated with future revenues from the sale of electricity? How might we manage these?

Marcus

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Save North Forest!

North Forest is located in an area of outstanding natural beauty that also includes a number of small towns and villages. Many local residents moved into the area after retiring and were attracted by the opportunity to breathe fresh air and be surrounded by beautiful views. In doing so, we have brought wealth into a local economy that was struggling because there was little employment to encourage younger people born in the area to stay.

Wodd plans to destroy North Forest in order to fuel a power station that will, in itself, spoil the view as well as polluting the atmosphere.

Globally, vast areas of forests are cleared every year for commercial exploitation. This creates untold risks for the planet because trees are responsible for giving us breathable air.

Local residents are working together with Green Marland, Marland's largest environmental campaigner, to draw attention to the damage that Wodd is threatening to inflict on this area.

We ask you to write to the Government planning department to ask it to refuse to issue a permit for this development. We also ask you to sign our online petition and to consider joining us in peaceful and non-violent direct action against the bulldozers in the event that our efforts to block the granting of a Government permit should fail.

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The Director of Finance, William Seaton, has stopped you in the corridor:

''Your report was really helpful, but the Board is still considering the implications of that email from Jan Archibald at Fouce Oil. I need to make a more detailed report to the Board and I would like you to draft it for me.

I know that we have owned and operated oil wells in the past, but that has always been with the intention of finding a buyer who is prepared to pay a realistic price. We have chosen never to think about the implications of keeping wells.

I need a report from you that covers the following issues:

The key political risks of retaining our interest in these oil wells, with particular emphasis on high consequence, high likelihood risks.

A suitable response to each of your political risks.

An overview of how changes in the global economy and the demand for oil could affect the decision to proceed.

The challenges associated with putting together a management team to take charge of the production side of this proposed new

strategy.

I realise that this is a lot to ask of you, but I need you to move quickly because of the interest from our biggest shareholder.''

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Wodd's Chairman enters your office:

"I am glad I caught you, I am looking for some advice, but I do not wish to involve your boss at this stage, or any of the other executive directors.

I have been approached by Darrell's Chairman concerning the possibility of a merger between our two companies. I was a little surprised because it has apparently, according to a press article, been in talks with at least one of our competitors and I suspect that it is keen to merge with any large company that can offer some synergy. I understand that Tabel, another major forestry company, has already rejected its proposal.

I happen to know that Darrell has invested a little too heavily in its new MDF factory. It is state of the art, but it has to operate at close to full capacity in order to be economic and Darrell just hasn't got sufficient forestry resources to keep the factory operating at full volume without destroying its own forests.

We are attractive to merge with because we own large forests that can sustain Darrell's needs. We don't manufacture MDF ourselves, but we have lots of experience of supplying this market with raw material. We would divert lots of this output to Darrell's factory. Darrell believes that it would be possible to dominate the MDF industry if it merged with a company such as ourselves. The fact that we were quite liquid at the end of last year also helps, because I understand that Darrell is having a few cash flow problems.

Its Chairman proposes a full merger. This will be achieved by the creation of a new parent company which will acquire existing equity in both companies through an exchange of shares. He and I will head a special nomination committee to select the most suitable Board for the new company and then I will step down from the Board while he continues as Chairman of the new company.

Needless to say, this is all highly confidential.

Do you think that it sounds as if there are potential and achievable synergies between Wodd and Darrell?

Would you regard it as a gross ethical breach to keep this conversation just between the two of us for the time being, without warning your boss, until I have had the chance to negotiate further with my counterpart at Darrell?"

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Peter Sorchi, Wodd's Chief Executive has stopped you in the corridor:

"We signed a memorandum of understanding with the Bravadorian Government last night. Effectively, we are now the new owners of a forest in a new continent for us. It has already made it onto the business pages in the press.

Once the formalities are completed, we will be entering into new commercial territory. Our surveyors have looked at the first area that we intend to develop and there is a lot more hardwood than we first expected. That is good news in a way because it can be sold at a premium, but we don't have any experience of selling hardwood and we are hardly going to pulp it for MDF or paper. I need you to identify the changes that we will have to make and to recommend how best to manage them.

The funding arrangements are still being worked out. Bravador's banks are not in a position to fund a transaction of this size and none of the other banks that we have approached are prepared to lend to us. We will need to raise additional equity. I realise that we would normally make a rights issue, but I think that it would be simpler and cheaper to suspend the dividend for a year, which would cover most of the purchase price in itself. Please advise me on the advantages and disadvantages of doing that.

It would be ideal if you could let me have a briefing paper on both of these matters urgently."

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