DO NOT OPEN THIS QUESTION PAPER UNTIL YOU ARE TOLD TO DO SO

Performance Pillar

P3 Performance Strategy
Thursday 27 February 2014
Instructions to candidates
You are allowed three hours to answer this question paper. You are allowed 20 minutes reading time before the examination begins during which you should read the question paper and, if you wish, highlight and/or make notes on the question paper. However, you will not be allowed, under any circumstances, to begin using your computer to produce your answer or to use your calculator during the reading time. You are strongly advised to carefully read ALL the question requirements before attempting the question concerned (that is all parts and/or subquestions). ALL answers must be submitted electronically, using the single Word and Excel files provided. Answers written on the question paper and note paper will not be submitted for marking. You should show all workings as marks are available for the method you use. The pre-seen case study material is included in this question paper on pages 2 to 6. The unseen case study material, specific to this examination, is provided on pages 8 and 9. Answer the compulsory question in Section A on page 11. This page is detachable for ease of reference Answer TWO of the three questions in Section B on pages 14 to 19. Maths tables and formulae are provided on pages 21 to 24. The list of verbs as published in the syllabus is given for reference on page 27. Your computer will contain two blank files a Word and an Excel file. Please ensure that you check that the file names for these two documents correspond with your candidate number.

The Chartered Institute of Management Accountants 2014

P3 Performance Strategy
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Pre-seen case study Introduction The Games is an international multi-sport event that is held within a region of the world every four years. It attracts competitors from 10 different countries within the region and is held at a different time from the Olympic Games. The Games are held in each of the countries in turn within the region. The next Games are scheduled to take place in Country C in October 2015. There are 25 sports included within the Games ranging from archery through to weightlifting. The Games were first held in 1979 and this is the first time that Country C has hosted them. Games Co-ordinating Committee (GCC) The Games Co-ordinating Committee was established in 1979 to set out the framework within which the individual country organisations should work in delivering the Games. Membership of the GCC is drawn from all the countries within the region which take part in the Games. Its aim is to promote the Games throughout the region of the world in which the Games take place. It is also responsible for setting out the mission under which the Games are established in each country. Mission of the GCC The mission of the GCC is to: Encourage and promote ethical competition in sport; Encourage and co-operate with public and private organisations in the preparation for and staging of the Games; Achieve high levels of sustainability for the infrastructure of the Games and the environment in which they take place; Promote sport and healthy lifestyles amongst young people; Promote the Games values of excellence, unity and achievement.

The mission of the GCC is untouchable in the sense that all who are involved in the Games, in whatever role, must adopt and promote it. Organisation of the Games within Country C In 2010, the Parliament in Country C passed an Act creating GAMESCO, a company limited by guarantee to organise and deliver the Games on time and within budget. GAMESCO also has responsibility for disposal of assets after the Games and selling any surplus land which is not retained for sporting purposes. The Minister of Sport in Country C and the elected Mayor of the city in which the Games are due to take place are the only two members of GAMESCO. Governance of the Games is carried out entirely by GAMESCO. In carrying out this role, it co-ordinates the activities of all people and organisations engaged in preparing for and operating the Games and it is responsible for the subsequent liquidation of all the Games assets. The Government of Country C believes that the Games will provide a major boost to Country C by providing commercial opportunities for enterprises such as hotels and retail outlets and enabling the re-generation of the current dilapidated land on which the Games will take place. It is expected that the prosperity of Country C and, in particular, the whole area in which the Games will take place, will increase. Mission, Vision and Values of GAMESCO The Board of GAMESCO is committed to meeting the mission of the GCC. It has established its own mission and values as follows: Mission: To deliver the Games successfully on time and on budget in accordance with the expectations of our stakeholders and in accordance with the mission of the GCC. GAMESCO is responsible for preparing, operating and winding up the Games, all within its budget. Country Cs Government provided capital to GAMESCO for building work to proceed. However, Country Cs Government is clear that it does not intend to support the Games beyond the funding it March 2014 2 Performance Strategy

has already invested. This places a large responsibility on GAMESCO to ensure that its overall expenditure does not exceed the revenue it generates from its activities and the government grants it has received. Values: GAMESCO will work tirelessly towards achieving the mission set out by the GCC. In striving to achieve the GCCs mission, GAMESCO will act fairly and responsibly with all its stakeholders, in particular its employees and partners, in order to generate trust and transparency. GAMESCOs organisational structure GAMESCO has a Board of Directors comprising: Chairman, Chief Executive, Directors for Finance, Sponsorship, Operations, Marketing, Commercial Activities, Estates, Communications, Human Resources, Information Systems, Venues, Athletes Services, a representative from each of the Minister of Sport and the Mayor, a sports representative drawn for each of the sporting activities which will be competed for during the Games and a representative of the GCC. GAMESCOs financial structure and budget Country Cs currency is C$. GAMESCOs financial structure is different from most commercial organisations. Under the Act of Parliament which set the company up, a provision was made that GAMESCO would not be subject to corporate tax. Revenue is generated by a mixture of government grants, sponsorships, ticket sales for the Games, rental of accommodation and broadcasting and other commercial fees. All capital works relating to the Games themselves, such as the athletics stadium, the cycling velodrome, the gymnastics arena and the swimming pool, are funded by government grants. However, construction of buildings for commercial activities such as cafes and restaurants is funded by the commercial organisations themselves and is not the responsibility of GAMESCO. The budget for the expected final cost of the Games is shown at Appendix 1. Project management An overarching supervisory consortium of experts in project management has been engaged by GAMESCO as an outsourced service. The role of the consortium is to prepare and monitor construction work on the whole of the Games Park site. The Games Park site will accommodate such buildings as the athletics stadium, the cycling velodrome, the gymnastics arena and the swimming pool. In addition, the consortium will ensure that utilities are installed, plans for construction works are approved, construction work progresses according to schedule and that contractors are able to access the site when building work takes place. GAMESCO employs independent project management teams with project managers responsible for each major building construction on-site. These project managers report directly to the consortium on the progress of the construction project for which they are responsible. An Information Systems Project Manager has been appointed by GAMESCO, whose role is to co-ordinate the provision of information systems on the site and to liaise with all the project managers on their information systems requirements for the construction projects for which they are responsible. A project management team has also been established to market the Games. All GAMESCOs marketing staff, with the exception of the Marketing Director, are attached to this project team. Service provision Professional architects, engineers and building companies are all engaged in developing the Games Park. In addition, land on which buildings will be erected must be clear of pollution. Utility services, such as water and electricity supplies to all venues involved with the Games are in the process of being provided. On the Games Park site itself, there will be a number of fast-food outlets, cafes and restaurants as well as ice cream parlours, sweet stores and souvenir shops. There will need to be provided hygiene facilities such as toilets. All of these will remain on-site for the duration of the Games and will be demolished afterwards. Some parks and gardens will be constructed within the Games Park. The parks and gardens will not be demolished but remain as amenities for the local population after the Games have finished. Performance Strategy 3 March 2014

Security for the Games will be tight. It is proposed that GAMESCO will engage a highly reputable security services contractor to provide security at all the Games venues, around the perimeter as well as within the grounds of the Games Park. It will be essential for the security contractor to engage sufficient staff to carry out this very large security service. Staffing While GAMESCO does employ its own staff, the majority of people working on-site are contractors. At present most of the activity being undertaken on-site is construction work. GAMESCO does employ its own Human Resource Management, Information Technology support and accounting staff. Senior staff and project managers are contracted for the duration of the Games and in some cases beyond. They are paid at a competitive rate. However, most staff are employed on temporary contracts on a month-to-month basis and generally receive relatively low pay compared with unskilled labour in Country C which has a high level of unemployment. When the Games begin, it is expected that most ancillary staff on-site, who will direct spectators to venues and facilities, will be volunteers. Many of these volunteers will take annual leave from their places of work in order to carry out this task. Sponsorship A major source of revenue for GAMESCO is sponsorship deals with major business organisations and this is therefore crucial to the successful staging of the Games. Sponsors are required to provide a guarantee of a minimum payment of C$ 1 million to GAMESCO. For this, sponsors become official partners of the Games and acquire marketing rights. This enables sponsors to build their brands and customer relationships, increase their revenue and enhance their own commercial reputation. Sponsorship can be divided into two types, direct and indirect. Direct sponsorship - gold sponsorship There are two levels of direct sponsorship, gold and silver. Gold is the highest level of sponsorship and gives sponsors major marketing rights. Gold sponsors are drawn from businesses such as electronic equipment suppliers, soft drink manufacturers and fast-food chains which can provide products and services to support the staging of the Games, in addition to providing a financial contribution. Gold sponsors are also expected to promote the Games by engaging in the development of sporting events across the region of the world in which the Games take place. For this, gold sponsors are entitled to use the Games logo on their products and services. Gold sponsors are required to engage in a range of activities to support the mission of GCC at the Games. See page 2 for details of the mission of the Games. Direct sponsorship - silver sponsorship Silver sponsors are only required to make a financial contribution to the staging of the Games. However, they too, are able to use the Games logo. Indirect sponsorship A form of indirect sponsorship which takes place when the Games are in progress is hospitality. Hospitality sponsorship relates to large businesses hiring facilities on-site in the Games Park to entertain their own customers and clients while the Games are in progress. These facilities mainly consist of hospitality rooms and boxes. Clearly the hospitality rooms and boxes in prestige venues, such as the athletics stadium, the cycling velodrome, the gymnastics arena and the swimming pool, will command a higher price on days when popular Games events are being held and also when medals are being awarded. Brand Leases One significant area of revenue generation is the opportunity for GAMESCO to lease its brand to all organisations engaged in supplying products and services to the Games. It is a condition of all goods and service suppliers that they must display the Games brand in all the venues in which they operate and in doing this, they incur a leasing charge which is directly payable to GAMESCO. In addition, any other organisation wishing to use the Games brand must also pay a leasing charge to GAMESCO for permission to do so.

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Marketing GAMESCO has carried out considerable press and television advertising and intends to increase this as the Games draw closer in order to stimulate public enthusiasm and ticket sales. Television rights to broadcast the Games have been agreed and GAMESCO has invested in stocks of merchandise which it has distributed to retailers around Country C. Games Village The athletes will be accommodated in the Games Village which is located in the Games Park. The Games Village will consist of several purpose built blocks of accommodation which provide hotel services in respect of individual bedrooms with en-suite toilet and shower facilities. The Games Village will also have its own catering and laundry facilities, using locally contracted staff. The daily cleaning of the rooms will also be contracted out to a local company. The Games Village will provide a regular bus shuttle service for the use of athletes to and from the city centre in which the Games are being held and also to and from the airport. After the Games, the Games Village will be converted into apartments to house local people. Drug testing and medical facilities A specific building will be constructed to enable appropriately qualified experts to carry out internationally approved drugs tests on athletes. The drug testing facility will be located close to the medical centre which will be specifically built for treating the athletes. If any spectator requires medical attention beyond basic first-aid, he or she will be taken to the nearest hospital as will any athlete if he or she requires treatment which cannot be provided at the medical centre. After the Games have finished, it is expected that the medical centre will be converted into a health clinic which will provide services to local residents. Business opportunities and legacy Much has been made in Country C about the huge opportunities for local businesses and the legacy of the Games. There is a range of contracts and work being done or still to be undertaken by businesses in Country C. These include construction, land re-generation, the provision of utility supplies and catering facilities before and during the Games. After the Games have finished, there will still be much work particularly for construction companies in re-instating land and undertaking buildings alteration work. Construction works including hotels and shopping facilities are now planned to be built on derelict land and all will be within easy reach of the Games Park. The hotels and shopping facilities are particularly attractive to developers as it is expected that the regeneration of the land, parks, gardens and sports facilities which remain after the Games will attract visitors and tourists. A major legacy is that many new homes and amenities will become available after the Games. For example, the athletes accommodation in the Games Village will replace much sub-standard accommodation in which many local people are currently housed. The Government thinks that the Games, which will be televised across the region and in other parts of the world, will showcase the country in general, attracting visitors and businesses not just for the duration of the Games but afterwards as well. In addition to the economic benefits, the Government hopes that the Games will inspire the public in Country C to take more physical exercise which it anticipates will bring health benefits to the population. Some of the facilities which will be constructed for the Games, such as the cycling velodrome, the gymnastics arena and the swimming pool, will become available for public use after the Games, enhancing the amenities for the local population.

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APPENDIX 1

Budget for the delivery of the Games C$ million Preparation of the Site and Infrastructure Power and utilities Preparatory construction work Structural work including access roads Landscaping Other preparation and infrastructural works Total preparation of site and infrastructure Venues Athletics stadium Swimming pool Cycling velodrome Gymnastics arena Venues operations control centre Other Games Park venues Total venues Transport Transport capital projects Transport operating costs Total transport Games Park Operations and Security Games Park Operations Security for Games Park construction Security during Games Insurance Total Games Park Operations and Security Games Village and Media Centre Games Village construction Media Centre construction Total Games Village and Media Centre Total expected final cost before contingency Contingency Total expected final cost 750 300 1,050 5,400 540 5,940 220 240 70 80 610 300 350 650 500 260 50 45 20 100 975 550 370 760 250 185 2,115

End of Pre-seen Material The unseen material begins on page 8.

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SECTION A 50 MARKS
[You are advised to spend no longer than 90 minutes on this question.]

ANSWER THIS QUESTION. THE QUESTION REQUIREMENTS ARE ON PAGE 11, WHICH IS DETACHABLE FOR EASE OF REFERENCE

Question One
Unseen case material Banned substances Only amateur athletes compete in the Games, but they are highly motivated to succeed. A good performance in an event at the Games will attract the attention of selectors for Olympic teams. Furthermore, a medal-winning amateur athlete in the most popular sports will almost certainly receive substantial payments from sponsorship and advertising contracts. That is particularly true when an athlete breaks a record for the highest score, the longest distance or the fastest time in an event. GAMESCO has made a very prominent and public commitment that there will be zero tolerance of cheating during the Games. In particular, any athlete who is suspected of using a drug as a performance enhancing substance will be investigated fully and will be disqualified if found to be guilty of the offence. Any medals awarded to an athlete who is subsequently found to have cheated at any time during the Games will be confiscated. The drugs testing facility will use the latest equipment. This equipment is capable of testing blood samples for the most commonly used performance enhancing drugs. Some drugs can be detected in a blood sample for several weeks after their use, while others are detectable for only a few hours. There will be medical staff on hand to take samples and the technicians in the drug testing facility will be expected to process any sample within two hours.

Post completion audit The Games Park is a major undertaking that is being built with two objectives in mind. The first is the creation of a suitable venue for the Games. The second is to leave a number of permanent facilities that will be useful to the local community for leisure purposes and as venues for more serious sporting competition at the national level in Country C. The swimming pool was the first major construction activity to be completed. Swimming is a popular spectator sport and so the pool was designed to accommodate large numbers of seated spectators. The architects who designed the building knew that most of the spectator seating would be unnecessary once the Games were over and designed it so that it would be easy to remove the seating along one side of the pool when the Games finish. The intention was that the space that this would create could be converted for use as a hall which would be suitable for local clubs and youth groups to play a range of sports such as basketball and badminton. The swimming pool was built by a construction company, working to GAMESCOs architects plans. The contract allowed for up to an additional 10% to be charged in the event of agreed contingencies, such as problems with the site. In fact, the whole of this 10% was charged because of the discovery that the soil structure on which the swimming pool was to be built was unstable and had to be reinforced with concrete pilings. The swimming pool was finished on time, despite the initial delays in preparing the site. When the building was formally handed over to GAMESCO it was discovered that much of the ducting for air conditioning, electrical supplies and so on had been routed under the seating that was scheduled to be removed after the Games. The contractor claimed that this was necessary because the original plan to route the ducting through the buildings foundations would have been too expensive because of the additional work on the site and also because the foundations themselves had been redesigned by GAMESCOs architect to cope with the addition of the concrete pilings. March 2014 8 Performance Strategy

The Mayor of the city that will take possession of the swimming pool after the Games has asked for a post completion audit of the swimming pool project. The city will be unable to adapt the seating area to provide the additional facility of a sports hall and the seating capacity will have no value. The project manager responsible for the swimming pool has argued that such an audit will serve no purpose.

Country D D is the largest country which is a member of the Games Co-ordinating Committee. D has a poor reputation for human rights. Country Cs main television network has recorded a documentary about human rights abuses in Country D and intends to broadcast it in the near future. Country Ds government is aware of the content of the documentary because the television reporters have interviewed senior members of Ds government for the programme. Ds government has protested to Cs government about the documentary. D has threatened a range of responses to the broadcast of a negative documentary, including the possibility that its athletes will boycott the Games. GAMESCO is concerned because the Games will be a sporting failure without the presence of Ds team.

The requirement for Question One is on page 11

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Required: (a)
(i) Recommend, stating reasons, the procedures that GAMESCO should put in place in order to deter and detect the use of drugs by athletes. (12 marks) (ii) Advise the Games Co-ordinating Committee of the risks arising from athletes being caught using banned substances to enhance their performances at the Games. (10 marks) (Total for part (a) = 22 marks)

(b)
(i) Discuss the advantages and disadvantages to GAMESCO of conducting a post completion audit of the swimming pool project. (8 marks) (ii) Recommend, stating reasons, the major issues that should be investigated during the post completion audit of the swimming pool project. (8 marks) (Total for part (b) = 16 marks)

(c)

Recommend, stating reasons, the actions that GAMESCO should take to minimise the risks to the success of the Games associated with the threatened response by Ds government to the forthcoming documentary. (12 marks) (Total for Question One = 50 marks)

(Total for Section A = 50 marks)

End of Section A. Section B begins on page 14

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SECTION B 50 MARKS
[You are advised to spend no longer than 45 minutes on each question in this section.]

ANSWER TWO OF THE THREE QUESTIONS

Question Two
J is a major television broadcaster that broadcasts within its home country. J is a commercial enterprise that generates revenues by selling advertising slots in the breaks between, and during, programmes. The price of an advertising slot varies according to the anticipated number of people who will be watching Js television channel at that time. There are several other broadcasters which also sell advertising slots and therefore compete with J for advertising revenues. Js programming department is responsible for purchasing programmes to broadcast. All of Js programmes are created by third parties. Some of the programmes are sold on the open market and J has to compete with other broadcasters for the right to show them. J also commissions a small number of programmes directly from the producers. Programmes that are commissioned by J cannot be sold to anybody else without Js permission. Commissioned programmes are usually more expensive. J sometimes recovers some of the cost of its commissioned shows by selling the rights to broadcast the programmes to broadcasters in other countries. An independent agency conducts daily surveys to determine the performance of all of the broadcasters in Js home country. Viewers are asked to list the programmes that they watched during the previous 24 hours and to state whether they enjoyed the programmes. These surveys are used to estimate the total number of people who watched each programme and also the level of satisfaction with each programme. Both statistics are very important to advertisers and both can affect a television broadcasting companys ability to negotiate favourable rates for future advertising slots. Once a programme has been purchased there is very little that J can do if it is unsuccessful. J will have already paid to broadcast the programme and cannot obtain a refund even if it decides not to broadcast it. Js directors evaluate the performance of the programming department in terms of the responses from viewers. Js Head of Programming is expected to achieve an audience share of at least 20% of those watching television at any given time. Also at least 60% of those who watched a programme must state that they enjoyed it. The previous Head of Programming was replaced because he could not consistently achieve these figures. The present Head of Programming has been in place for eight months and has achieved the targets for at least 95% of the time. Js directors are concerned that the evaluation of the programming department takes the form of negative feedback. The emphasis in a negative feedback system tends to be on the identification of failures to achieve targets, with a view to addressing the causes of such failures. The directors are now considering shifting their emphasis over to positive feedback, which tends to focus on the identification of successes, in the hope that further successes can be achieved.

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Required: (a)
Discuss the potential benefits to J of considering viewers satisfaction as well as the viewing figures themselves. (6 marks)

(b)

Advise the directors about the potential drawbacks of their focus on negative feedback. (9 marks)

(c)

Evaluate the potential advantages and disadvantages to J of the directors proposal to use positive feedback. (10 marks) (Total for Question Two = 25 marks)

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Question Three
C Bank provides traditional banking services to individual customers and small businesses. It is a small bank that has 14 branches within a region of its home country. The bank has 48,000 customers. Each customer has at least one bank account and many customers have several accounts. The bank maintains detailed, computerised records of every account. These are maintained on a database that can be queried in a variety of ways. The database shows all transactions on every account going back to 2003, when the database was first established. The database records are very detailed, showing the time and date of every transaction and the identity of the member of staff who processed the transaction. The bank received a letter in January 2014 from a lawyer who is dealing with the estate of a customer who died in 2009. The customer was an elderly person who did not have any close relatives. It had taken almost five years for a distant relative, R, to claim the estate. R had obtained correspondence that showed that the deceased customer had held a savings account with C Bank that had a substantial balance. When R contacted the bank in order to claim this balance the bank replied that the account had been closed by the account holder in 2013 and all funds had been withdrawn in cash. R took legal advice and the lawyer wrote to C Bank to point out that the cash could not have been withdrawn by the account holder, enclosing a copy of the account holders death certificate. The banks internal audit department conducted an investigation. C Bank has a policy of requiring the branch manager to authorise withdrawals of more than GBP 500. Starting in June 2013 there had been a daily withdrawal of GBP 495 from the account that had continued until the funds had been exhausted. All of the withdrawals had been processed by H, a bank clerk employed in the Westown branch. The Head of Internal Audit believes that H knew that the customer had died in 2009 and had checked that the account had been dormant since that time. H then appears to have acted on the assumption that he could withdraw the funds without getting caught because the customers relatives did not appear to be aware of the account. H was interviewed and was formally warned that the internal audit department was investigating his behaviour with a view to determining whether he had defrauded the bank. H denied the suggestion that he had acted fraudulently and he claimed that it was purely a coincidence that he had processed all of those transactions. H claims that the cash must have been withdrawn by a third party who came to the bank with forged credentials. The Head of Internal Audit does not believe that there is sufficient evidence to report H to the police or even to take disciplinary action against H. C Banks Head Computer Programmer has been asked to assist by using the database to determine whether H has processed any similar transactions involving other accounts. The Head of Internal Audit is also concerned that these events have highlighted a potential loophole in the banks control system. The system allows bank staff to withdraw cash from dormant accounts without attracting suspicion, provided the account holder is not monitoring the account balance. C 1 Bank has many dormant accounts. dormant account a bank account showing no activity (other than posting interest) for some specified period, usually several years.
1

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Required: (a)
Advise the Head Computer Programmer on the factors that should be taken into account in designing database queries to assist the internal audit department investigate the clerks suspicious behaviour. (10 marks)

(b)

Evaluate whether there is a need for C Bank to determine if additional controls to prevent unauthorised withdrawals are necessary. (7 marks) Recommend, stating reasons, control procedures that C Bank should introduce in order to deter unauthorised withdrawals from dormant accounts if it is established that there is a need for such controls. (8 marks) (Total for Question Three = 25 marks)

(c)

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Question Four
L manufactures specialised paper products for sale in its home country, Country B. The market is very price sensitive. Some of Ls competitors are based in its home country and others export to Country B. The manufacturing process is not particularly skilled, but it is very labour intensive. Ls largest costs are for wages and flax fibre (the basic raw material used in manufacturing Ls products). Almost 60% of Ls total manufacturing cost is for wages. Ls directors are considering moving production offshore to Country R, a developing country that has low wage rates. The products will then be transferred to Country B for sale. Ls home currency is the BND. Country Rs currency is the RTD. At present, the exchange rate is 1.00 BND = 2.50 RTD. L presently pays an hourly rate of 6.00 BND to its production staff. Workers with comparable skill levels would be paid 2.75 RTD per hour in Country R. Flax fibre is sold as a commodity on the global markets. It is priced in US Dollars (USD). All of Ls purchases of flax fibre are imported. Shipping flax fibre to the new factory would be much cheaper than shipping it to Ls home country. Those savings would pay for the cost of shipping the finished products to Ls home country for sale. Ls directors are currently asking for information that will help them with an appraisal of the financial viability of the new factory. Ls Chief Economist has reported that there are no credible long-term economic forecasts available. She has, however, obtained some basic economic indicators that could be used to predict future wage rates: Country B 5.00% 2.00% Country R 9.00% 4.70%

Interest rates per annum General inflation per annum

Ls Production Director has stated that there is no need to consider the implications of manufacturing abroad in relation to the cost of flax fibre because it is priced in USD.

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Required: (a)
(i) Produce a forecast of the hourly rate in BND that will be paid to employees in Country R in five years time. You must explain the assumptions that you have made at each stage of your calculations. (9 marks) (ii) Evaluate the assumptions that were made and explained in (a)(i),explaining why reality could differ from what you assumed. (6 marks) (Total for part (a) = 15 marks)

(b)

Discuss the Production Directors statement that the price of flax fibre is irrelevant to the decision to move production to Country R because flax fibre is priced in terms of USD. (4 marks)

(c)

Advise Ls board of the political risks that L will be taking in its home country if it proceeds with this project. (6 marks) (Total for Question Four = 25 marks)

(Total for Section B = 50 marks)

End of Question Paper. Maths tables and formulae are on pages 21 to 24

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PRESENT VALUE TABLE

Present value of $1, that is 1+ r payment or receipt.
Periods (n) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Periods (n) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 1% 0.990 0.980 0.971 0.961 0.951 0.942 0.933 0.923 0.914 0.905 0.896 0.887 0.879 0.870 0.861 0.853 0.844 0.836 0.828 0.820 2% 0.980 0.961 0.942 0.924 0.906 0.888 0.871 0.853 0.837 0.820 0.804 0.788 0.773 0.758 0.743 0.728 0.714 0.700 0.686 0.673 3% 0.971 0.943 0.915 0.888 0.863 0.837 0.813 0.789 0.766 0.744 0.722 0.701 0.681 0.661 0.642 0.623 0.605 0.587 0.570 0.554

)n where r = interest rate; n = number of periods until

4% 0.962 0.925 0.889 0.855 0.822 0.790 0.760 0.731 0.703 0.676 0.650 0.625 0.601 0.577 0.555 0.534 0.513 0.494 0.475 0.456 Interest rates (r) 5% 6% 0.952 0.943 0.907 0.890 0.864 0.840 0.823 0.792 0.784 0.747 0.746 0.705 0.711 0.665 0.677 0.627 0.645 0.592 0.614 0.558 0.585 0.527 0.557 0.497 0.530 0.469 0.505 0.442 0.481 0.417 0.458 0.394 0.436 0.371 0.416 0.350 0.396 0.331 0.377 0.312 Interest rates (r) 15% 16% 0.870 0.862 0.756 0.743 0.658 0.641 0.572 0.552 0.497 0.476 0.432 0.410 0.376 0.354 0.327 0.305 0.284 0.263 0.247 0.227 0.215 0.195 0.187 0.168 0.163 0.145 0.141 0.125 0.123 0.108 0.107 0.093 0.093 0.080 0.081 0.069 0.070 0.060 0.061 0.051 7% 0.935 0.873 0.816 0.763 0.713 0.666 0.623 0.582 0.544 0.508 0.475 0.444 0.415 0.388 0.362 0.339 0.317 0.296 0.277 0.258 8% 0.926 0.857 0.794 0.735 0.681 0.630 0.583 0.540 0.500 0.463 0.429 0.397 0.368 0.340 0.315 0.292 0.270 0.250 0.232 0.215 9% 0.917 0.842 0.772 0.708 0.650 0.596 0.547 0.502 0.460 0.422 0.388 0.356 0.326 0.299 0.275 0.252 0.231 0.212 0.194 0.178 10% 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 0.424 0.386 0.350 0.319 0.290 0.263 0.239 0.218 0.198 0.180 0.164 0.149

11% 0.901 0.812 0.731 0.659 0.593 0.535 0.482 0.434 0.391 0.352 0.317 0.286 0.258 0.232 0.209 0.188 0.170 0.153 0.138 0.124

12% 0.893 0.797 0.712 0.636 0.567 0.507 0.452 0.404 0.361 0.322 0.287 0.257 0.229 0.205 0.183 0.163 0.146 0.130 0.116 0.104

13% 0.885 0.783 0.693 0.613 0.543 0.480 0.425 0.376 0.333 0.295 0.261 0.231 0.204 0.181 0.160 0.141 0.125 0.111 0.098 0.087

14% 0.877 0.769 0.675 0.592 0.519 0.456 0.400 0.351 0.308 0.270 0.237 0.208 0.182 0.160 0.140 0.123 0.108 0.095 0.083 0.073

17% 0.855 0.731 0.624 0.534 0.456 0.390 0.333 0.285 0.243 0.208 0.178 0.152 0.130 0.111 0.095 0.081 0.069 0.059 0.051 0.043

18% 0.847 0.718 0.609 0.516 0.437 0.370 0.314 0.266 0.225 0.191 0.162 0.137 0.116 0.099 0.084 0.071 0.060 0.051 0.043 0.037

19% 0.840 0.706 0.593 0.499 0.419 0.352 0.296 0.249 0.209 0.176 0.148 0.124 0.104 0.088 0.079 0.062 0.052 0.044 0.037 0.031

20% 0.833 0.694 0.579 0.482 0.402 0.335 0.279 0.233 0.194 0.162 0.135 0.112 0.093 0.078 0.065 0.054 0.045 0.038 0.031 0.026

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Cumulative present value of $1 per annum, Receivable or Payable at the end of each year for n years
1 (1+ r ) n r

Periods (n) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Periods (n) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

1% 0.990 1.970 2.941 3.902 4.853 5.795 6.728 7.652 8.566 9.471 10.368 11.255 12.134 13.004 13.865 14.718 15.562 16.398 17.226 18.046

2% 0.980 1.942 2.884 3.808 4.713 5.601 6.472 7.325 8.162 8.983 9.787 10.575 11.348 12.106 12.849 13.578 14.292 14.992 15.679 16.351

3% 0.971 1.913 2.829 3.717 4.580 5.417 6.230 7.020 7.786 8.530 9.253 9.954 10.635 11.296 11.938 12.561 13.166 13.754 14.324 14.878

4% 0.962 1.886 2.775 3.630 4.452 5.242 6.002 6.733 7.435 8.111 8.760 9.385 9.986 10.563 11.118 11.652 12.166 12.659 13.134 13.590

Interest rates (r) 5% 6% 0.952 0.943 1.859 1.833 2.723 2.673 3.546 3.465 4.329 4.212 5.076 5.786 6.463 7.108 7.722 8.306 8.863 9.394 9.899 10.380 10.838 11.274 11.690 12.085 12.462 4.917 5.582 6.210 6.802 7.360 7.887 8.384 8.853 9.295 9.712 10.106 10.477 10.828 11.158 11.470

7% 0.935 1.808 2.624 3.387 4.100 4.767 5.389 5.971 6.515 7.024 7.499 7.943 8.358 8.745 9.108 9.447 9.763 10.059 10.336 10.594

8% 0.926 1.783 2.577 3.312 3.993 4.623 5.206 5.747 6.247 6.710 7.139 7.536 7.904 8.244 8.559 8.851 9.122 9.372 9.604 9.818

9% 0.917 1.759 2.531 3.240 3.890 4.486 5.033 5.535 5.995 6.418 6.805 7.161 7.487 7.786 8.061 8.313 8.544 8.756 8.950 9.129

10% 0.909 1.736 2.487 3.170 3.791 4.355 4.868 5.335 5.759 6.145 6.495 6.814 7.103 7.367 7.606 7.824 8.022 8.201 8.365 8.514

11% 0.901 1.713 2.444 3.102 3.696 4.231 4.712 5.146 5.537 5.889 6.207 6.492 6.750 6.982 7.191 7.379 7.549 7.702 7.839 7.963

12% 0.893 1.690 2.402 3.037 3.605 4.111 4.564 4.968 5.328 5.650 5.938 6.194 6.424 6.628 6.811 6.974 7.120 7.250 7.366 7.469

13% 0.885 1.668 2.361 2.974 3.517 3.998 4.423 4.799 5.132 5.426 5.687 5.918 6.122 6.302 6.462 6.604 6.729 6.840 6.938 7.025

14% 0.877 1.647 2.322 2.914 3.433 3.889 4.288 4.639 4.946 5.216 5.453 5.660 5.842 6.002 6.142 6.265 6.373 6.467 6.550 6.623

Interest rates (r) 15% 16% 0.870 0.862 1.626 1.605 2.283 2.246 2.855 2.798 3.352 3.274 3.784 4.160 4.487 4.772 5.019 5.234 5.421 5.583 5.724 5.847 5.954 6.047 6.128 6.198 6.259 3.685 4.039 4.344 4.607 4.833 5.029 5.197 5.342 5.468 5.575 5.668 5.749 5.818 5.877 5.929

17% 0.855 1.585 2.210 2.743 3.199 3.589 3.922 4.207 4.451 4.659 4.836 4.988 5.118 5.229 5.324 5.405 5.475 5.534 5.584 5.628

18% 0.847 1.566 2.174 2.690 3.127 3.498 3.812 4.078 4.303 4.494 4.656 4.793 4.910 5.008 5.092 5.162 5.222 5.273 5.316 5.353

19% 0.840 1.547 2.140 2.639 3.058 3.410 3.706 3.954 4.163 4.339 4.486 4.611 4.715 4.802 4.876 4.938 4.990 5.033 5.070 5.101

20% 0.833 1.528 2.106 2.589 2.991 3.326 3.605 3.837 4.031 4.192 4.327 4.439 4.533 4.611 4.675 4.730 4.775 4.812 4.843 4.870

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Formulae
Annuity Present value of an annuity of 1 per annum receivable or payable for n years, commencing in one year, discounted at r% per annum: PV =
1 1 1 n r [1 + r ]

Perpetuity Present value of 1 per annum, payable or receivable in perpetuity, commencing in one year, discounted at r% per annum: PV =
1 r

Growing Perpetuity Present value of 1 per annum, receivable or payable, commencing in one year, growing in perpetuity at a constant rate of g% per annum, discounted at r% per annum: PV =
1 r g

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LIST OF VERBS USED IN THE QUESTION REQUIREMENTS

A list of the learning objectives and verbs that appear in the syllabus and in the question requirements for each question in this paper. It is important that you answer the question according to the definition of the verb. LEARNING OBJECTIVE
Level 1 - KNOWLEDGE What you are expected to know.

VERBS USED
List State Define

DEFINITION
Make a list of Express, fully or clearly, the details/facts of Give the exact meaning of

Level 2 - COMPREHENSION What you are expected to understand.

Describe Distinguish Explain Identify Illustrate

Communicate the key features Highlight the differences between Make clear or intelligible/State the meaning or purpose of Recognise, establish or select after consideration Use an example to describe or explain something

Level 3 - APPLICATION How you are expected to apply your knowledge.

Apply Calculate/compute Demonstrate Prepare Reconcile Solve Tabulate

Put to practical use Ascertain or reckon mathematically Prove with certainty or to exhibit by practical means Make or get ready for use Make or prove consistent/compatible Find an answer to Arrange in a table

Level 4 - ANALYSIS How are you expected to analyse the detail of what you have learned.

Analyse Categorise Compare and contrast Construct Discuss Interpret Prioritise Produce

Examine in detail the structure of Place into a defined class or division Show the similarities and/or differences between Build up or compile Examine in detail by argument Translate into intelligible or familiar terms Place in order of priority or sequence for action Create or bring into existence

Level 5 - EVALUATION How are you expected to use your learning to evaluate, make decisions or recommendations.

Advise Evaluate Recommend

Counsel, inform or notify Appraise or assess the value of Advise on a course of action

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Performance Pillar

Strategic Level Paper

P3 Performance Strategy

March 2014

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