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CIMAPRO19-CS3-1 Practice Questions

Try 10 free CIMAPRO19-CS3-1 exam-style questions for Strategic Case Study. Check each answer and review the explanation and source references.

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CIMAPRO19-CS3-1
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CIMA
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The formal merger with Darrell has been negotiated and the legal formalities have been completed. The two company management teams are working on the integration of the two businesses. You receive an email from Peter Sorchi, the Chief Executive of the merged company: From: Peter Sorchi, Chief Executive Officer To: Senior Finance Manager Subject: Integration of IT and treasury Hi, I need you to advise me on a couple of matters. The attached press clipping shows how sensitive this is. We need to integrate the IT and treasury functions of the former Wodd and Darrell. I thought that it would be a simple matter of identifying the common ground and slimming down both companies’ departments to cover the new entity, but I have the heads of both IT and treasury from each company arguing that their approaches are better for the merged group and that they should take the lead. Wodd’s Treasurer claims to be an expert in natural hedging of currency risks and Darrell’s argues that her department was highly successful because it makes excellent use of derivatives for hedging. Both agree only on the fact that they cannot work together. I am afraid that I have to agree with them on that and the Board will have the difficult decision of choosing between them. I have the opposite problem with the IT function. The two Heads of IT are excited to be able to combine their databases and to develop their respective interests in Big Dat a. They claim that we should retain all of the professional staff in both departments and possibly even expand the merged IT Department beyond that. Given the rationalisation in all of our other functions, I do not think that we can agree to that, but I would hate to throw away a worthwhile opportunity. Please give me your thoughts on the following:  What approach to hedging is more likely to meet our needs: natural hedging or heavy use of derivatives?  Ignoring hedging, what other factors should we consider in deciding between the two treasurers?  Are the two heads of IT likely to be correct in arguing that we need to retain all existing IT staff in order to exploit synergies in data, particularly opportunities to leverage Big Data?  What would the challenges be in motivating them to reduce their joint staffing levels and how might we deal with these? Peter
Reference Material: CIMA CIMAPRO19 CS3 1 question 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
Three weeks have passed since you were informed that the relocation would definitely proceed. You have received the following email from William Seaton, Director of Finance: From: William Seaton, Director of Finance To: Finance Manager Subject: Detailed issues associated with the relocation Hi, Congratulations, you are now officially in charge of the transition team! I am confident that you will do an excellent job and that it will be an opportunity to enhance your career. I realise that the transition team is expected to reduce the pressure on the Board, but I have been asked to keep an eye on things and to ensure that your team has everything that it needs. I won’t interfere, but I will stay in touch. There are a few matters that I think you should address as a matter of urgency.  Firstly, we need to have plans in place to ensure that our information systems are ready. What changes will we have to make in order to best align the information system with the company’s needs? I am not asking about hardware issues or the physical relocation, but the changes to the information system itself.  Secondly, how might we make use of the data in our own records and external sources to ensure that the new Head Office is managed as efficiently as possible? Remember that the present Head Office is a large and complex operation in its own right and it costs a significant amount to run.  Thirdly, our relocation will create a number of challenges for our corporate treasury team. I need you to identify the key challenges and suggest how they might be dealt with.  Finally, I would like you to identify the criteria against which the success or failure of your team will be judged once the transition is complete. I need your recommendations to be relevant and measurable. William
Reference Material: CIMA CIMAPRO19 CS3 1 question Wodd’s Chief Executive, Peter Sorchi has stopped you in the corridor: "This weak USD is really causing us some serious problems. I think that it is only a matter of time before the stock market starts to get nervous and I am worried that our share price will fall in the near future. Thank goodness it does not appear to have fallen by much so far. I would like to brief the Board on two main issues tomorrow. Firstly, what can we do as a Board in order to minimise the negative impact of the weak USD on our share price? Secondly, we know the identities of the key investment analysts who deal with our industry. Would it be a good idea for us to brief them? Please also consider the ethical issues arising from both of these topics as well as the more technical matters. Please let me have a copy of your briefing notes in advance. I need to be able to sound convincing at the meeting. I’ll also have my secretary refer you to a really helpful blog."
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
Memorandum of Understanding between Fouce Oil and Slide It is proposed that Fouce Oil and Slide will temporarily combine their exploration activities, with Slide taking overall control in recognition of the greater expertise of its professional exploration staff. This collaboration will work as follows: 1. Slide will take responsibility for the management and operation of all future exploration activities for the two companies, with effect from 1 October 2015. 2. Fouce Oil will second all of its professional oil exploration staff to Slide. Fouce will continue to employ these staff and will pay their salaries. 3. Slide will brief Fouce Oil’s professional oil exploration staff on all operational matters relating to exploration activities for the duration of this arrangement. 4. The provisions of paragraph 3 will apply to any projects in which Slide participates with third parties on a farm-in or other joint venture basis. 5. In recognition of Slide’s greater expertise, Fouce Oil will offer its entire portfolio of existing exploration rights to this venture, without any charge to Slide. Fouce Oil will also pay for 55% of any and all exploration costs, leaving Slide responsible for the remaining 45%. 6. The revenues from all successful discoveries will be shared equally by Slide and Fouce Oil. In the event that either party wishes to sell an oil well, the other will have the option of purchasing the other’s rights for 50% of the well’s agreed valuation. 7. This arrangement will be subject to review at the end of five years and annually thereafter. In the event that either party wishes to discontinue the arrangement, all ongoing exploration projects will be drawn to an orderly conclusion. Signed Thomas Yip, Chief Executive Officer, Fouce Oil Andrew Jones, Chief Executive Officer, Slide 14 May 2015
SIMULATION CIMA CIMAPRO19 CS3 1 question 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
SIMULATION A month later, you receive the following email: CIMA CIMAPRO19 CS3 1 question Reference Material: From: Hesham El-Sayed. Independent Non-executive Director To: Romuald Marek. Chief Finance Officer Subject: Collapse of fuel supplier Hi Romuald I am writing to give you some advance notice of an internal audit investigation that has been commissioned by the Audit Committee Just over a year ago. Planejoos, a newly formed company, approached the management team at Airfield's Capital City International (CCI) airport and offered to take over refueling operations at Starport Planejoos offered a higher percentage of revenue than the existing supplier was paying CCI's management team agreed and appointed Planejoos rather than renew the existing supplier's contract. CCI was unable to conduct the usual background and credit checks on Planejoos for two reasons. Firstly, Planejoos was a new company and so did not have an extensive credit history that could be checked Secondly CCI was under time pressure to reach a decision on whether to renew the existing supplier's contract or allow it to expire CCI's management team claimed that it had acted quickly in order to benefit from the additional revenue that could be earned from dealing with Planejoos The management team was acting on the basis that it had an ethical duty to maximise the wealth of Airfield's shareholders and that maximising revenues from fuel sales through this agreement with Planejoos was consistent with that ethical duty. Unfortunately, as a new company. Planejoos struggled to obtain trade credit and the high demand for fuel put the company's cash flows under extreme pressure Receipts from sales lagged behind payments for inventory Planejoos has now collapsed, leaving a large trade receivable that CCI will have to write off as uncollectable CCI had permitted this receivable to accumulate rather than pressing for payment and so putting Planejoos under further pressure. Fortunately, the previous fuel supplier was prepared to return to CCI. Kind regards
Two weeks have passed since the article about Wodd’s role in tax avoidance was published. Thankfully, the initial reaction was to condemn the celebrities who invest in tax avoidance and little was said about Wodd’s role in facilitating tax-efficient investments. You have received the following email from Sarah Johns, Marketing Director: From: Sarah Johns, Marketing Director To: Senior Finance Manager Subject: Forestry certification Hi, I am told that you would be a good person to talk to concerning the practical implications of a new venture that has been proposed. I have attached a sales brochure that I downloaded from Tabel’s website. Tabel is a competing forestry company that has similar interests to our own. It has recently launched the certification scheme that it has described in its brochure. It has no competition for this certification in Marland because no other company has sought the qualifications required to offer an accredited Forest Certification Service. Wodd has the necessary skills to offer a credible Forest Certification Service. Our forestry managers already aim to exceed all of the requirements set out by the global body. We also have a well- resourced internal audit department. I believe that we could transfer either forestry managers or internal auditors to a new external certification department. The transferred staff would complete the training required by the global body and would sit the associated examinations. We could then compete with Tabel’s service. I need your advice on the following: Could you explain how you imagine that a typical certification investigation would work and the skills that it would require? That will help us to decide whether to approach forestry managers or internal auditors and will also enable us to describe the work that they would be doing if they agreed to be transferred. What are the challenges associated with motivating and evaluating the investigators in the certification service and how might we address these? Sarah Reference Material: CIMA CIMAPRO19 CS3 1 question
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
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