CS3 Practice Exam Questions and Answers

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

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 Data. 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

You received a telephone call at home early in the morning, asking you to check your emails. The following email was waiting for you:

From: William Seaton, Director of Finance

To: Finance Manager

Subject: Public relations crisis

Hi,

This email arrived from the Head of our Middle East office just now. They are a few hours ahead of us, so he rang me at home to make sure that I had seen his message.

We have a few hours before the news article will be published, so I need to make the best use of that time in order to limit the damage to Slide. Your priority is to protect our reputation because I have already woken up the engineers and geologists and they are going to deal with the actual oil spillage.

I am not thinking too clearly, so I need you to provide some initial thoughts on the following:

Should we use our business relationship with Business News to have them withdraw the story? We are a major advertiser and we spend millions with them every month. What are the advantages and disadvantages?

Should we respond with the facts as we know them? All we know for certain is that there have been reports of oil contamination in an area that has countless oil facilities nearby, and so we could deny all responsibility, at least until our experts have had the chance to get there and to investigate.

If we do decide to make a public announcement then we will need to have a plan in place. We need to assemble a team to deal with the press. How should we structure our media response team?

What are the key factors that the Board should consider when communicating with the press? Explain why the factors that you have identified are important.

I realise that it is still very early, but I need your thoughts very quickly.

Thanks

William

The email referred to above can be found by clicking on the Reference Materials button.

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

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

A week later, Romuald Marek stops by your workspace and hands you a document.

The Board minute extract from Romuald can be viewed by clicking the Reference Material button above.

Reference Material

Board minutes extract: proposal to profit from ongoing strength of NS

Anna Obalowu Sole, Chief Operating Officer, reported that the strong NS was helping generate revenues from fuel sales. Discussion followed as to whether the strong N$ was likely to persist and whether a strong N$ benefits Arrfield overall.

Markus Jokela. Chief Executive Officer, stated that the Board should develop contingency plans that could be implemented if it seemed likely that the strong N$ would persist. In particular. Arrfield need not renew the contracts that permit aviation fuel suppliers to operate from its airports. Arrfield would then be free to create its own fuel sale business, buying fuel in bulk to replenish the storage tanks at each of its airports in Norland and then selling it directly to airlines He stated that this would almost certainly enhance Arrfield's share price

Romuald Marek reminded the Board that four of Arrfield's six airports are located in Norland and that those airports charge for aeronautical and non-aeronautical services in N$.