<< Prev Question Next Question >>

Question 2/21

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?"

LEAVE A REPLY

Your email address will not be published. Required fields are marked *

Question List (21q)
Question 1: The following email has just arrived: From: William Seaton, ...
Question 2: A further eight weeks have passed since the discussion conce...
Question 3: Newsweb Wodd and Darrell announce plans for restructuring Tr...
Question 4: Reference Material: (Exhibit) You have received the followin...
Question 5: The Director of Finance, William Seaton, has stopped you in ...
Question 6: Twelve hours have passed since you received the telephone ca...
Question 7: From: Martin Wills, Head Geologist To: William Seaton, Direc...
Question 8: A month has passed since you submitted the report requested ...
Question 9: Peter Sorchi, Wodd's Chief Executive has stopped you in the ...
Question 10: Newsweb Protesters block bulldozers Attempts by Wodd to harv...
Question 11: Reference Material: (Exhibit) Wodd's Chief Executive, Peter ...
Question 12: Daily Gazette Draft story for comment The singer, the forest...
Question 13: Daily Gazette Celebrities flock to release tax returns Comed...
Question 14: The Director of Finance, William Seaton, has invited you int...
Question 15: SIMULATION A month later, you receive the following email: (...
Question 16: From: Abdhulla Al- Waihabi, Regional Manager - Middle East -...
Question 17: Memorandum of Understanding between Fouce Oil and Slide It i...
Question 18: Six months have passed since you briefed William Seaton, Dir...
Question 19: Three months has passed since the discussion concerning Fouc...
Question 20: You have received the following email from Peter Sorchi, CEO...
Question 21: The formal merger with Darrell has been negotiated and the l...