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NEW QUESTION # 43
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?"
Answer:
Explanation:
Complete your answer and submit
NEW QUESTION # 44
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
Reference Material:
Answer:
Explanation:
Complete your answer and submit
NEW QUESTION # 45
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:
Explanation:
Complete your answer and submit
NEW QUESTION # 46
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:
Explanation:
Complete your answer and submit
NEW QUESTION # 47
Six months have passed since you first heard of the possibility that Slide might relocate its Head Office to the Middle East.
You have been called into William Seaton, the Director of Finance's office:
"After lots of deliberation, the Board has reached a final decision on the Head Office move. It has been decided that we will relocate to the Middle East.
I need you to draft a report on the following matters:
* First of all, we need a strategy for the choice of country to which we are going to relocate. I need you to think about the strategic decisions that will have to be taken so that we obtain the best possible value from the relocation.
* Secondly, we have to think about the change management issues with respect to Slide's senior managers. We have a good team of senior managers and Board members and we wish to see them relocate with the company. I need your thoughts on this.
* Thirdly, there will be significant change issues for the other staff members. We cannot justify moving all of them to the Middle East, but we will be relying on them to ensure an orderly transition from the current Head Office to the new one. They will be busy for several months, then most will be made redundant. The rest will be offered new jobs with Slide because we will need a scaled down administrative presence in Kayland. Again, I need your suggestions for this.
* Finally, we need to put together a transition team to deal with the many administrative issues that the move will create. I need you to suggest a clear job description for the transition team that explains the main operational tasks required, so that the directors can be left free to focus on the strategic management."
Answer:
Explanation:
Complete your answer and submit
NEW QUESTION # 48
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