Important CIMAPRO19-CS3-1 Exam Questions

You are sitting in your office when you hear Marcus Svenson, the Finance Director, speaking on the telephone. You can hear only Marcus' side of the conversation:

"Hello, I would like to speak to Sally Walker please. It is Marcus Svenson here. (pause)

Hi Sally, you contacted me six months ago to discuss a job opportunity that you thought I'd be suitable for. I said that I didn't wish to pursue it at that time because I was committed to Wodd. Things have changed since then and I would like to be considered for a finance directorship in another company. (pause)

Yes, I'm still with Wodd. (pause)

Yes, I realise that there was an unfortunate story in the business press about the problems that the weak USD is causing us, but there was very little that I could do to prevent that. (pause)

I am sorry to hear that. I had hoped to move on." (sound of telephone hanging up and door opening)

Marcus discovers that you are sitting at your desk and realises that you would have heard his side of the call.

"Please don't tell anybody what you heard. Would you regard it as unethical to respect my privacy?

I suspect that the CEO knows that I am thinking of leaving. He commented on the need for Board members to be loyal to Wodd at the last Board meeting. But don't you agree that the shareholders can better protect themselves against currency fluctuations than the directors?

The crazy thing is that I suspect that the Chairman will dismiss me next month. If that happens, I get a year's salary as a severance package. That will really annoy the shareholders. How can I justify accepting the severance package if I am effectively being dismissed for failing to manage Wodd's finances properly?

I need to explain at the next Board meeting why it would have been difficult to evaluate the risk of the USD weakening. According to an article I read, it has been picked up as a serious problem for us. How would you advise me to explain that?"

Reference Material:

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?"