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Real CIMA CIMAPRO19-CS3-1 Exam Dumps with Correct 46 Questions and Answers
CIMA CIMAPRO19-CS3-1 Exam Syllabus Topics:
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NEW QUESTION # 10
SIMULATION
Hello
I have attached a news article
Arrfield does not set the price for aviation fuel sold at our airports, but we do receive a percentage of the revenues earned by the fuel companies.
I need your help to prepare for a Board meeting to discuss this matter Please write a paper covering the following
* Firstly, explain the impact that the criticisms voiced by the environmental campaigners will have on the frequent PESTEL analysis that Arrfield's Board conducts.
[sub-task (a) = 34%
* Secondly, evaluate the commercial logic of Arrfield's strategy of basing charges for non-aeronautical services (such as fuel sales and retail activities) on percentages of the revenues generated by the companies that operate at its airports
[sub-task (b) = 33%)
* Thirdly, recommend with reasons whether Arrfield should attempt to justify strategic decisions to its shareholders when the commercial logic of those decisions is not immediately obvious
[sub-task (c) = 33%}
Thanks
Romuald Marek
Chief Finance Officer
Answer:
Explanation:
See the answer below in explanation
Explanation:
Requirement 1
The criticism from the environmental campaigns for sale of cheap fuel at the Arrfield airports is not a good sign but the prices of the fuel are not set by the Arrfield. In most of the countries the fuel prince are regulated through Oil and Gas regulatory authorities. As the Arrfield airports are providing the facilities to airlines to refill fuel at the airport which is necessary for the flying of the plane on commission bases, it contribute a significant portion of profit of the Arrfield.
The environmental campaigners criticism is on the usage use of fuel which cause carbon emissions. The Govt, of the Norland may set the price of the fuel in Norland and regulate the prices of the fuel in Norland. After the criticism Govt, of Norland may think to not allowing the fuel companies to pass the cheap fuel import to the airlines. This may be hostile of the Arrfiled business. Many airline may choose the Norland for the flight operation due to gaining advantage of cheaper fuel refill.
As the airlines are buying more fuel which makes the plane heavier and burn more fuel which harm to the environment is a great concern. This could lead to legal and environmental litigation and penalties. The reputation risk is also here if corrective actions are not taken by Arrfield.
Requirement 2
As the Airfield also rely heavily on the non-aeronautical revenues to make profits and the it increase from a substantial percentage in 2020 as to the preceding year. The fuel companies operate in Arrfied airports which is intrinsic in the airport business. It will be difficult for the Arrfield to provide the fuel by itself. It is worthwhile that the Arrfieid earning commission without involving the fuel operations.
As the Norland is being liked by the airlines for refueling its plane is good for the Arrfield to make profit. Arrfield earn commission as much as the airline buy fuel from fuel companies. But by decreasing the price of the fuel it is also worth mentioning that the Arrfield commission is also remains at lower side.
There are three elements in the scenario: 1- Higher sale higher commission. 2- Sale at lower price lower commission. 3-Reputational and environmental risk involved.
Requirement 3
The shareholders are major stakeholders of the company. They are key players have high amount of power and high level of interest. The Arrfield must communicate true affairs of the business to its shareholders. If the commercial logic of decision are not obvious then the poor understanding of the affairs may lead to chaos. The managers are representative of the shareholders and should do everything in the best interest of the shareholders. If they will make the decisions which are not logically understandable then, the shareholders may lose their trust in the management.
The shareholders must not be justified to the shareholder if they are not commercially valuable. Whether or not the decisions are profitable these may be communicated to shareholders which represent true picture of the decisions breach of CIMA ethical principles.
NEW QUESTION # 11
The following email has been forwarded to you by William Seaton, Director of Finance:
From: William Seaton, Director of Finance
To: Finance Manager
Subject: Yesterday's Board meeting
Hi,
One of my fellow Board members made a brief presentation to the Board. I am attaching the slides that were used in this presentation.
I have to say that I thought that some of the advice being offered to the Board was incorrect, but I would rather make a positive contribution to the discussion and so I said very little.
I need you to email me your thoughts on the following:
* Your views on the presentation relating to tax matters
* Your views on the briefing relating to the decision making process
* Your views on the briefing's recommendations on driving performance
* Finally, an alternative briefing note on driving performance. Ideally, that should be two or three headings, with a clear explanation for each.
As usual, this is urgent. Many thanks for your help so far with this project.
William
The slides can be found by clicking on the Reference Materials button.
Answer:
Explanation:
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NEW QUESTION # 12
Six months have passed. Wodd has announced its intention to create a biomass power station in its North Forest, to be fuelled by trees from the North Forest itself and also waste biomass products from other timber land owned by Wodd in that area.
The news has received mixed reactions. Younger residents of the small towns close to North Forest were delighted because their local economy will be boosted. Older residents and those living further afield within the region complain that the power station will pollute the environment and the destruction of the North Forest will blight an area of outstanding beauty. A residents' group has been established online, with support from Marland's largest environmental lobbying group, to block the proposal.
You have received the following email from Marcus Svenson, Finance Director:
From: Marcus Svenson, Finance Director
To: Senior Finance Manager
Subject: Stakeholder issues
Hi,
I have sent you a link to the website created by the protestors against the biomass power station. This is causing serious problems because we still need to gain formal Government approval, although the Government supports biomass as an energy source as it is far cleaner and more sustainable than fossil fuel and far less controversial than nuclear. Needless to say, the press has picked up on this and is starting to run the story.
We had reached agreements in principle with Marland Bank for funding for this project and with a civil engineering contractor for the construction work, but both are now nervous about signing contracts because neither wishes to be associated with an environmental scandal.
I need two things from you.
Please draft the body of a press release that we can issue in response to the claims on the protestors' website. Add a few comments to explain what your arguments are trying to achieve (I don't want us simply to state that we disagree with the protestors, I want us to offer meaningful arguments in response). Just write your draft as part of your reply to this email and I will circulate it to the other Board members for approval before we submit it.
Please suggest some safeguards that we can put in place to enable us to retain the support of the bank and the civil engineer throughout this project.
Marcus
Answer:
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NEW QUESTION # 13
The following email has just arrived:
From: William Seaton, Director of Finance
To: Finance Manager
Subject: News article
Hi,
My Secretary has drawn my attention to the attached newspaper clipping. I have been reading comments like this since Fouce Oil acquired its interest in 2010. We briefed the press at the time and made it clear that we would not be commenting further on our relationship with it unless it changed materially. Nothing has happened since then to make us change our mind on that.
The Board has asked me to compile a report on the following:
* How might the presence of Fouce Oil, as a 25% shareholder, affect our decision making as a Board of Directors? Perhaps, surprisingly, we have never had a formal discussion of this matter.
* How will Fouce Oil's stake in Slide affect our share price?
I would like you to email me your thoughts on these points so that I can have as long as possible to think about what I will say to the Board.
Thanks
William
The newspaper clipping can be found by clicking on the Reference Materials button.
Answer:
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NEW QUESTION # 14
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
Answer:
Explanation:
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NEW QUESTION # 15
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."
Answer:
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NEW QUESTION # 16
You have received the following email from Marcus Svenson, Finance Director:
From: Marcus Svenson, Finance Director
To: Senior Finance Manager
Subject: News reports
Hi,
I have sent you a link to a news site on the internet. Things are getting complicated in Bravador.
Every Board member has been asked to attend a brainstorming session this afternoon, before the CEO flies out to Bravador this evening. We will be considering the following four matters:
* Is it acceptable for us to develop this forest, given the commitment that we have made with respect to indigenous peoples' rights? They have been quoted at the end of the news article.
* Is it fair for the environmental protestors to complain that our operations are unsustainable?
* Would it be unethical to offer to build a village, with a proper school and medical clinic, for the tribe and to offer them work in our forestry operations?
* Is it really a good idea for the CEO to fly to Bravador just to appear on the television news in his boots and overalls?
Please email me your thoughts on each of these matters before I leave for the meeting this afternoon.
Marcus
Answer:
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NEW QUESTION # 17
You have received the following email from Marcus Svenson, Finance Director:
From: Marcus Svenson, Finance Director
To: Senior Finance Manager
Subject: Investment opportunity
Hi,
The Board is considering an investment opportunity to buy a forest in Bravador, a country in South Americ a. This will be a major expansion and will also enable us to diversify into new lines. For example, the forest contains lots of hardwood varieties that we could sell to companies in the double glazing industry or to furniture manufacturers. I downloaded the attached extract from an online encyclopaedia for your information.
The forest that we are planning to buy has not been used for commercial purposes until now. The land belonged to the Government for many years and it has been left to grow naturally. The Government is now keen to sell the land and has agreed that it may be used for commercial forestry purposes.
This investment will enable us to increase our output of softwoods by up to 20% per year, in addition to enabling us to enter the hardwood market.
I need two things from you. I need you to recommend a suitable approach to managing our relationship with the Bravadorian Government. I also need you to identify and explain the political risks that will remain even if we succeed in creating a sound relationship with the Government.
Marcus
Reference Material:
Answer:
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NEW QUESTION # 18
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." Reference Material:
Answer:
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NEW QUESTION # 19
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.
Answer:
Explanation:
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NEW QUESTION # 20
From: Abdhulla Al- Waihabi, Regional Manager - Middle East - Slide
To: William Seaton, Director of Finance
Subject: Press article
Hi William,
I have just had a telephone call from a journalist at Business News to ask for a comment on a story that it plans to run. As you know, we purchased oil wells in the AZ40 field last year in order to bring them back to full production. We got the wells for a good price because the previous owner was struggling to maintain oil pressure and it appeared that the recoverable reserves in that field were close to exhaustion. Our experts worked out a plan to drill a hole and pump water into the well to force more oil to the surface. That is a standard industry technique. Our geologists are the best in the industry and so we are better than most at bringing wells back on stream.
It now appears that we are being blamed for an environmental catastrophe. Our pumping station is only one kilometre from the sea and there are reports of oil coming to the surface along the coast close to where we are operating. We have only just started operations and there are fears that we have ruptured a rock formation with our high pressure pumping.
I have ordered an immediate halt to all pumping activity, but the oil could continue to bubble up for years. The coastal area has some important coral reefs and there are fishermen who depend on shellfish that can be found there.
I told the journalist that she would have to wait for a response from Slide's Board. Business News is a European newspaper, so any comment from you will carry more weight anyway.
I am sorry to be the bearer of such bad news.
Abdhulla
Answer:
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NEW QUESTION # 21
Reference Material:
You have received the following email from Marcus Svenson, Finance Director:
From: Marcus Svenson, Finance Director
To: Senior Finance Manager
FW: Pricing
Hi,
I am forwarding an email from Sarah Johns.
Sarah has not been with us for very long and this is her first experience of dealing with a currency price movement.
I am really busy, so I need you to respond to her requests. Please email her as soon as possible.
Marcus
From: Sarah Johns, Marketing Director
To: Marcus Svenson, Finance Director
Subject: USD movement
Hi Marcus,
A lot of our biggest customers are threatening to cancel orders unless we reduce our selling prices. Timber and associated products are commodity items that are priced in USD, so I thought that our prices would automatically remain competitive regardless of what happened to the USD. I am particularly confused over domestic sales, because many of the customers who have threatened to cancel are based in this country and we invoice them in M$.
Please help me to understand why the M$/USD exchange rate can affect our competitive position in this way.
I also wish to know why you have chosen to do nothing to hedge against this risk. If you look at the attached article you will see that the USD is an issue in the business news.
Sarah
Answer:
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NEW QUESTION # 22
The Director of Finance, William Seaton, has invited you into his office.
"This will come as a bit of a shock, but the Board has decided that it would be in our best interests to relocate our Head Office from Kayland to the Middle East. We have interests there, including a regional office, already. We know that the oil industry is welcome and there are several governments which are very open to such foreign direct investment from the West.
Nothing has been decided for certain, but there are compelling tax advantages to us relocating. We would also be subject to slightly less restrictive legal requirements. We can retain our listing on the Kayland stock exchange, albeit as a foreign company.
Things are very much under consideration at the moment, so please don't tell anybody about this conversation.
I want to check that I have thought of everything at the strategic level before we make an irreversible decision to move. I need you to write me a report on the following:
* What are the strategic implications of moving our Head Office from Europe to the Middle East?
* What are the strategic risks that might arise and how might we deal with them?
I need to have your thoughts soon because the Board is holding a special meeting this afternoon."
Answer:
Explanation:
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NEW QUESTION # 23
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
Answer:
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NEW QUESTION # 24
A month has passed since you submitted the report requested by William Seaton, Director of Finance on the Board's proposals.
You have received the following email:
From: William Seaton, Director of Finance
To: Finance Manager
Subject: Shale oil
Hi,
One of the geologists made a presentation to the Board, proposing that we investigate the extraction of shale oil deposits. I have attached the slides that were used as the basis for this presentation.
I need you to work on a response to this document:
* Firstly, what risks do you envisage in our entry to the shale oil business?
* Secondly, what do you regard as the key factors that we should consider when deciding on proceeding with this proposal? Please justify your selection.
* Thirdly, what factors should we take into account when deciding on which country or countries to commence this side of the business?
* Finally, what are the challenges in creating a team of technical staff to lead our efforts in this area?
William
The presentation slides can be found by clicking on the Reference Materials button.
Answer:
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NEW QUESTION # 25
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.
Answer:
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NEW QUESTION # 26
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