P3 Performance Strategy

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1 DO NOT OPEN THIS QUESTION PAPER UNTIL YOU ARE TOLD TO DO SO Performance Pillar P3 Performance Strategy Thursday 28 February 2013 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 open the answer book and start writing or use your calculator during this 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 to 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 17. Maths tables and formulae are provided on pages 19 to 22. The list of verbs as published in the syllabus is given for reference on page 23. 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. P3 Performance Strategy TURN OVER The Chartered Institute of Management Accountants 2013

2 Pre-seen case study V, a private limited company in a European country (SK), which is outside the Eurozone, was founded in The currency in SK is SK$. V is a travel business that offers three holiday (vacation) products. It has a network of 50 branches in a number of major cities throughout SK. History of the company V achieved steady growth until six years ago, when it found that its market share was eroding due to customers increasingly making online bookings with its competitors. Direct bookings for holidays through the internet have increased dramatically in recent years. Many holidaymakers find the speed and convenience of booking flights, accommodation or complete holidays online outweighs the benefits of discussing holiday alternatives with staff in a branch. V s board had always taken the view that the friendly direct personal service that V offers through its branch network is a major differentiating factor between itself and other travel businesses and that this is highly valued by its customers. However, V found that in order to continue to compete it needed to establish its own online travel booking service, which it did five years ago. Until this point, V s board had never engaged in long-term planning. It had largely financed growth by reinvestment of funds generated by the business. The large investment in IT and IS five years ago required significant external funding and detailed investment appraisal. Much of V s business is now transacted online through its website to the extent that 60% of its revenue in the year ended 30 June 2012 was earned through online bookings. Current structure of V s business V offers three types of holiday product. These are known within V as Package, Adventure and Prestige Travel. V only sells its own products and does not act as an agent for any other travel companies. It uses the services of other companies engaged in the travel industry such as chartered airlines and hotels which it pays for directly on behalf of its customers. Package Package provides holidays mainly for families with children aged up to their late teens. These typically are for accommodation in hotels (where meals are part of the package) or self-catering apartments (where no meals are provided within the package). Adventure Adventure caters for people aged mainly between 20 and 30, who want relatively cheap adventure based holidays such as trekking, sailing and cycling or who wish to go on inexpensive back-packing holidays mainly in Europe and Asia. Prestige Travel Prestige Travel provides expensive and bespoke holidays mainly sold to couples whose children have grown up and left home. The Prestige Travel product only provides accommodation in upmarket international hotel chains in countries across the world. All three of these products provide holidays which include flights to and from the holiday destinations and hotel or self-catering accommodation. V has its own customer representatives available at the holiday destinations to provide support to its customers. All-inclusive holidays (in which all food and drinks are provided within the holiday price) are offered within each of the three product offerings. Support products V supports its main products by offering travel insurance and foreign currency exchange. The travel insurance, which is provided by a major insurance company and for which V acts as an agent, is usually sold along with the holidays both by branch staff and by staff dealing with online bookings. Currency exchange is available to anyone through V s branches irrespective of whether or not the customer has bought a holiday product from V. A new currency exchange product is provided by V through which a customer purchases an amount of currency, either in SK s home March Performance Strategy

3 currency (SK$) or else in a foreign currency and this is credited on to a plastic card. The card is then capable of being read by automated teller machines (ATM s) in many countries across the world allowing the customer to withdraw cash in the local currency up to the amount that has been credited on to the card. Marketing of products V relies for the vast majority of its business on the literature, available in hard copy and online, which it provides on the holiday products it sells. Exceptionally, V is able to offer some of its existing holiday products at discount prices. These may be offered under any of the three main products offered but they are mostly cut-price holiday deals which are available under the Package holiday product label. Sales structure Staff in each of the 50 branches accept bookings from customers and all branches have direct IT access to head office. Online enquiries and bookings are received and processed centrally at head office, which is located in SK s capital city. Branch managers have some discretion to offer discounts on holidays to customers. V offers a discount to customers who buy holidays through its online bookings. The branch managers have authority to reduce the price of a holiday booked at the branch up to the amount of the online discount if they feel it is necessary to do so in order to make the sale. Financial information V s revenue, split across the holiday and support products offered, for the financial year ended 30 June 2012 is summarised as follows: Revenue SK$ million Package 90 Adventure 60 Prestige Travel 95 Support products 5 The overall net operating profit generated in the financial year to 30 June 2012 was SK$35 million and the profit for the year was SK$24 million, giving a profit to sales ratio of just under 10%. V s cash receipts fluctuate because of seasonal variations and also because V s customers pay for their holidays shortly before they depart. Further details, including extracts from V s income statement for the year ended 30 June 2012 and statement of financial position as at 30 June 2012 are shown in Appendix 1. Financial objectives V s key financial objectives are as follows: 1. To grow earnings by, on average, 5% a year. 2. To pay out 80% of profits as dividends. Foreign exchange risk V has high exposure to foreign exchange risk as its revenues received and payments made are frequently in different currencies. It normally settles hotel bills and support costs, such as transfers between hotels and airports in the local currencies of the countries where the hotels are located. It normally pays charter airlines in the airline s home currency. Scheduled airline charges are settled in the currency required by the particular airline. V is exposed to fluctuations in the cost of aircraft fuel incurred by airlines which are passed on to travel businesses. It has often been necessary for V to require its customers to make a supplementary payment to cover the cost of increases in aircraft fuel, sometimes after the customer had thought that the final payment for the holiday had been made. Performance Strategy 3 March 2013

4 Board composition and operational responsibilities The Board of Directors comprises five people: an Executive Chairman (who also fulfils the role of Chief Executive), a Finance Director, an Operations Director, an IT Director and a Human Resources Director. The Executive Chairman founded the business in He has three grown-up children, two of whom successfully pursue different business interests and are not engaged in V s business at all. The third child, a son, is currently taking a year out from study and is going to university next year to study medicine. The branch managers all report directly to the Operations Director. In addition, the Operations Director is responsible for liaising with airlines and hotels which provide the services offered by V s promotional literature. The IT Director is responsible for V s website and online enquiries and bookings. The Finance Director is responsible for V s financial and management accounting systems and has a small team of accountancy staff, including a part-qualified management accountant, reporting to her. The Human Resources Director has a small team of staff reporting to him. Shareholding There are 90 million SK$0.10 (10 cent) shares in issue and the shareholdings are as follows: % holding Executive Chairman 52 Finance Director 12 Operations Director 12 IT Director 12 Human Resources Director 12 Employees V employs 550 full-time equivalent staff. Turnover of staff is relatively low. High performance rewards in terms of bonuses are paid to staff in each branch if it meets or exceeds its quarterly sales targets. Similarly, staff who deal with online bookings receive a bonus if the online bookings meet or exceed quarterly sales targets. V s staff, both in the branches and those employed in dealing with online bookings, also receive an additional bonus if they are able to sell travel insurance along with a holiday product to customers. Employee development for staff who are in direct contact with the public is provided through updates on products which V offers. Each member of branch and online booking staff undertakes a two day induction programme at the commencement of their employment with V. The emphasis of the induction programme is on customer service not on details relating to the products as it is expected that new staff will become familiar with such product details as they gain experience within V. Safety V publicly states that it takes great care to ensure that its customers are as safe as possible while on holiday. To date, V has found that accidents while on holiday are mainly suffered by very young children, Adventure customers and elderly customers. There has been an increase in instances over the last year where customers in resort hotels have suffered severe stomach complaints. This has particularly been the case in hotels located in resorts in warm climates. Executive Chairman s statement to the press V s Executive Chairman was quoted in the national press in SK in January 2012 as saying, We are maintaining a comparatively high level of revenues and operating profit. This is in a period when our competitors are experiencing very difficult trading conditions. We feel we are achieving this due to our particular attention to customer service. He cited V s 40 years of experience in the travel industry and a previous 99% satisfaction rating from its customers as the reasons for its success. He went on to state that V intends to expand and diversify its holiday product range to provide more choice to customers. Board meeting At the next board meeting which took place after the Executive Chairman s statement to the press, the Operations Director expressed some concern. He cast doubt on whether V was able March Performance Strategy

5 to provide sufficient funding, marketing and IT/IS resources to enable the product expansion to which the Executive Chairman referred. The Operations Director was of the opinion that V places insufficient emphasis on customer relationship marketing. The Finance Director added at the same meeting that while V presently remained profitable overall, some products may be more profitable than others. The Executive Chairman responded by saying that V s high level of customer service provides a sufficiently strong level of sales without the need to incur any other marketing costs. He added that since V achieved a high profit to sales ratio, which it has managed to maintain for a number of years, it really didn t matter about the profits generated by each customer group. Retirement of the Executive Chairman The Executive Chairman formally announced to the Board in July 2012 that he intends to retire on 30 June 2013 and wishes to sell part of his shareholding in the company. The Board members believe the time is now right for V, given its expansion plans, to enter a new stage in its financing arrangements, in the form of either debt or equity from new providers. Performance Strategy 5 March 2013

6 APPENDIX 1 Extracts from V's income statement and statement of financial position Income statement for the year ended 30 June 2012 Notes SK$ million Revenue 250 Operating costs (215) Net operating profit 35 Interest income 3 Finance costs (4) Corporate income tax 1 (10) PROFIT FOR THE YEAR 24 Statement of financial position as at 30 June 2012 Notes SK$ million ASSETS Non-current assets 123 Current assets Inventories 3 Trade and other receivables 70 Cash and cash equivalents 37 Total current assets 110 Total assets 233 EQUITY AND LIABILITIES Equity Share capital 2 9 Share premium 6 Retained earnings 60 Total equity 75 Non-current liabilities Long-term borrowings 3 50 Revenue received in advance 3 Current liabilities Trade and other payables 35 Revenue received in advance 70 Total liabilities 158 Total equity and liabilities 233 Notes: 1. The corporate income tax rate can be assumed to be 30%. 2. There are 90 million SK$0.10 (10 cent) shares currently in issue % of the long-term borrowings are due for repayment on 30 June The remainder is due for re-payment on 30 June There are debt covenants in operation currently which restrict V from having a gearing ratio measured by long-term debt divided by long-term debt plus equity of more than 50%. End of Pre-seen Material The unseen material begins on page 8 March Performance Strategy

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8 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 Adventure holidays When adventure holidays were first offered, V tended to offer flights and accommodation only and the customers made their own arrangements for activities directly with local businesses at the holiday destination. However over the past few years, there has been much more demand for a structured adventure product. For example, customers on trekking holidays now want V not only to offer flights and accommodation but also to offer pre-arranged treks led by an expert trekker who speaks their language and has considerable local knowledge. V s adventure holidays are generally based in locations that offer a range of activities. At each resort V employs, on a full-time and permanent basis, a number of SK nationals to act as adventure leaders. Each adventure leader is required to be able to lead one or more type of adventure activity. V offers three adventure activities: Trekking customers spend three days relaxing and acclimatising at the resort hotel and then spend seven days walking as a group led by an adventure leader. Each day s trek has a hostel or a camp site as its destination and accommodation is always pre-booked. The final trek brings them back to the resort hotel, where the customers spend the remainder of their holiday relaxing until they fly home. Cycling each customer is provided with the use of a bicycle. Cycling holidays follow the same pattern as trekking holidays. Customers relax and acclimatise at the resort before cycling to a series of overnight stops that offer secure storage for the bicycles as well as food and accommodation for the guests. Sailing each resort offers a range of boating activities, ranging from sea kayaking (canoes that carry either an individual or a pair of people and are propelled by paddles) to sailing small boats that can carry between three and six people. Customers are offered a structured activity, such as a group of customers kayaking or sailing a small boat along the coast to a beach, each day. V uses ten resort hotels that offer adventure holidays. Each of those hotels is a base for several adventure leaders, each of whom is expected to participate in at least two adventure activities. For example, an adventure leader might be a qualified sailing instructor but could also be expected to lead groups of customers on cycling trips. V s Human Resources Director is concerned that V could be liable for failing to take proper care of the adventure leaders. There have been no serious incidents to date, but the Human Resources Director is concerned that there has not been a formal risk assessment of the duties undertaken by the adventure leaders. The Human Resources Director has proposed that V should recruit a Safety Manager who will be based at V s head office, but who will visit each of the resorts frequently. The Safety Manager will carry out a risk assessment at each resort for each of the activities carried out there. The Safety Manager will then prepare detailed safety rules for each activity that will be tailored to each resort and will conduct follow-up visits to ensure that the procedures are effective. The Safety Manager s focus will be on the health and safety of V s employees rather than its customers. March Performance Strategy

9 Responsibility centres V s Operations Director is responsible for all aspects of creating the holidays sold by V. He works with airlines and hotels to ensure that customers are satisfied and that V s operations are profitable. The Operations Director is responsible for developing new holiday packages and for maintaining the quality of existing holidays. The Operations Director directly supervises the three managers of the three head office departments responsible for the Package, Adventure and Prestige Travel products. Each department is responsible for liaising with airlines, dealing with hotels and designing holiday brochures and the text and images on web pages. Each department is responsible for managing its own advertising budget and advertising the holidays through what it thinks are the most appropriate channels. The Operations Director wishes to reorganise the company s operations. He wishes to have one department that is responsible for dealing with airlines, another to deal with hotels and a third to be responsible for advertising and promotion. The three managers who report to him would each take charge of one of those areas. The Operations Director has developed plans that can accomplish the proposed changes without any net change in staffing levels. He believes that his changes will enhance the company s performance. Ocean atoll V s board has been in discussion with J for several months. J owns a beautiful island in the Indian Ocean. The island is the setting for a luxurious hotel that caters for a very small number of guests. The island is two miles long and one mile wide. It is unoccupied except for the hotel. All of the hotel s staff are accommodated in a residential block when they are off duty and they have permanent homes on the mainland. The island does not have an airport. Hotel guests fly to an airport on the mainland and then make the final leg of their journey by helicopter. All supplies are transported by sea. The hotel owner has offered V the opportunity to create an exclusive Prestige Travel holiday package on the island. He has agreed to sell V a plot of land along the coast from the existing hotel. V will build a hotel that is less luxurious than the existing one, but that will still be classed as a premium holiday destination. V s hotel will be serviced by J s staff. J will expand the residential block in order to ensure that there is capacity for sufficient staff. V does not presently offer any other holidays in this region and has no plans to do so in the foreseeable future. It plans to have one of the charter airlines that it deals with to offer a weekly service to the airport on the mainland. It would be impractical to transport all of the arriving and departing passengers to and from the island by helicopter, but J has introduced V to a ferry operator that owns a high-speed hydrofoil ferry that has the capacity to meet V s requirements. V s Executive Chairman has spoken to the local Minister for Tourism. The minister claims that his country is keen to attract inward investment and to create jobs in the leisure industry. He says that he will have no hesitation in granting V all of the necessary permissions to build and operate the hotel. V s Executive Chairman is, however, concerned because the Minister for Tourism is also coming under pressure from environmental campaigners. The island has no fresh water or other natural resources of its own. All electricity has to be generated using diesel generators. The existing hotel has harmed local wildlife and this proposed development will increase that damage. The requirement for Question One is on page 11 Performance Strategy 9 March 2013

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11 Required: (a) (i) (ii) Recommend, stating reasons, the background and experience that should be sought when recruiting the Safety Manager. (6 marks) Discuss the reasons why it is important to have a Safety Manager who takes responsibility for the health and safety of adventure leaders. (7 marks) (iii) Recommend, stating reasons, the factors that the Safety Manager should take into account when writing safety rules to protect both the adventure leaders and customers on cycling holidays. (7 marks) (Total for part (a) = 20 marks) (b) Discuss the risks and benefits that are likely to arise from the Operations Director s proposals to restructure the responsibility centres. (10 marks) (c) (i) Evaluate the risks that V will be taking with respect to its reliance on the Minister for Tourism if it proceeds with the proposed development on J s island. (10 marks) (ii) Recommend, stating reasons, some precautions that V could take to prevent losses arising from the withdrawal of support by the Minister for Tourism. (10 marks) (Total for part (c) = 20 marks) (Total for Question One = 50 marks) (Total for Section A = 50 marks) End of Section A. Section B begins on page 14 TURN OVER Performance Strategy 11 March 2013

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14 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 A private hospital has a canteen that provides staff and visitors with subsidised meals and refreshments. The canteen s selling prices are supposed to cover running costs, so that there is no net cost to the hospital. Over the past eighteen months the canteen has been reporting losses that have been increasing steadily despite monthly sales remaining constant. The cost of purchases has grown substantially for no apparent reason. The purchasing of supplies and the choice of suppliers is the sole responsibility of the Canteen Manager. The current Canteen Manager has been in post for almost two years. The hospital s Chief Executive asked the Head of Internal Audit to investigate why the canteen was making losses and a thorough investigation was conducted under the supervision of F, an experienced auditor and qualified accountant. The internal audit team discovered that the losses started shortly after the Canteen Manager changed suppliers. F compared the invoiced prices charged by the new supplier with those charged by the former supplier and discovered that the new supplier was significantly more expensive. F interviewed the Canteen Manager, who claimed that he had changed suppliers because the new supplier was more reliable and provided higher quality products. F was suspicious and contacted a number of alternative suppliers. None of the potential suppliers whom F contacted would have charged as much as the canteen was paying for basic commodities such as rice and potatoes. Furthermore, the canteen s invoices showed that it was paying far more than the normal market price for branded goods, such as crisps and chocolate bars. F was in the Canteen Manager s office one lunch time. He saw a laptop computer open at an to the supplier and investigated further. The Canteen Manager had been using a personal account to the owner of the supplier on a daily basis. The s revealed that: the owner had been inflating the selling prices of all goods sold to the hospital by 20%; the Canteen Manager passed these inflated invoices for payment; and the owner then paid half of the 20% that had been overcharged to the Canteen Manager in cash. F confiscated the laptop, which was the Canteen Manager s personal property, and submitted it, along with a full report, to the Head of Internal Audit. Two weeks later, F was asked to meet with the hospital s Chief Executive. The hospital s directors had discussed the report carefully and had interviewed the Canteen Manager and decided that they did not wish to refer the matter to the police. The Canteen Manager had been accompanied by a lawyer, who stated that the Canteen Manager denied all charges of fraud and pointed out that there was very little evidence to support F s accusations. F could have easily falsified the s on the laptop and the owner of the food supplier had supplied the lawyer with a statement that no payments had been made to the Canteen Manager. The Chief Executive had agreed that the hospital would return the Canteen Manager s laptop and would make him a substantial payment in return for his agreement to resign quietly. The Chief Executive had also promised that the Canteen Manager would receive a positive reference. F was asked to destroy any remaining notes and documents relating to this investigation and to remain silent, not discussing the case with anyone either within the hospital or any third parties. March Performance Strategy

15 Required: (a) (b) (c) Discuss the difficulties associated with proving that the Canteen Manager was fraudulent. Critically evaluate the decision by the Chief Executive to pay the Canteen Manager to resign quietly. (10 marks) Advise F on the ethical issues arising from destroying his notes and maintaining silence on this investigation. (7 marks) (8 marks) (Total for Question Two = 25 marks) Section B continues on the next page TURN OVER Performance Strategy 15 March 2013

16 Question Three H is a training company that provides executive training in management subjects. H provides short courses that range from a single day to five days. H has five offices and each office has between ten and twenty full-time trainers. H s courses are very expensive. Delegates are senior managers and company directors. All courses are paid for by employers who are keen to equip their staff with new skills or to update existing knowledge. Many courses are taught in H s offices to small groups of delegates, each of whom has come from a different company. These courses are advertised on H s website and some, like finance for non-financial managers, are taught frequently throughout the year. H will also adapt an existing course or even write a new course from scratch and offer it in-house for a client company. Trainers often have to travel away from home and stay in hotels in order to present in-house courses at clients offices. Each course delegate receives a printed copy of the course materials and an electronic copy on a memory stick. Feedback indicates that delegates like to refer to the paper copy during the course and then take the electronic copy for ease of storage and future reference. Courses are presented using laptops and projectors. Slides are written on an industry-standard presentation software package. H has provided each trainer with a laptop and all of the company s training rooms are equipped with projectors. Client companies also have projectors that are available for presentations. Each course has a very specific syllabus and the course materials are written to a very high standard. A master copy of the material used on each course, including client-specific in-house courses is stored on a PC at H s head office and updated copies are backed up to a server at another office. Courses are reviewed regularly and updated when required. The companyspecific courses are held so that they can be adapted if necessary for other companies or to become a general offering. Image is very important and H s trainers all take great pride in their personal appearance. They all take care to ensure that they are well dressed. That pride also extends to being seen to have the latest technology. Many of H s trainers have bought themselves tablet computers that they can use instead of their laptops. There are different operating systems for these machines, but all can run the software required to edit and present course materials and all of the trainers have purchased models that can work with standard projectors. The trainers feel that these tablets look more impressive and that they are lighter to pack when they have to work away from home on in-house courses. The tablets have also been used to go online and access H s systems. H s Head of IT is concerned that there could be problems associated with the trainers using their own tablet computers in this way. Required: (a) (b) Discuss the risks associated with H s staff using their own equipment (for example tablets) instead of the laptops provided by H. (13 marks) Recommend, with explanations, the policies and procedures that H should adopt for the use and purchase of laptops and other devices used by the trainers. (12 marks) (Total for Question Three = 25 marks) March Performance Strategy

17 Question Four M is a manufacturing company. M s home currency is the E$. M made a sale to a customer for goods to the value of E$10 million. The customer s currency is the U$ and the customer insisted on being invoiced in that currency. The spot rate for exchange is E$4 = U$1. The customer is due to pay U$2.5 million in 30 days. The exchange rate between these two currencies is volatile, with the daily volatility being 0.8%. There are no forward markets for this combination of currencies, but M has found two counterparties who are willing to enter into option arrangements: Counterparty 1 is prepared to sell M a put option that will grant M the right to sell U$2.5 million for E$9 million on the expected date of receipt of the customer s payment. The option will cost M E$200,000. Counterparty 2 is prepared to buy a call option from M that will give counterparty 2 the right to buy U$2.5 million for E $10.5 million. Counterparty 2 will pay M E$160,000 for this option. Required: (a) (i) Calculate the 30 day 95% value at risk on the U$ receivable. (5 marks) (ii) Calculate the probability that either of the two options will be exercised. (5 marks) (Total for part (a) = 10 marks) (b) Evaluate the implications for M of each of the two option arrangements. (8 marks) (c) Discuss the factors that M and the counterparties should take into account when negotiating the price of the options. (7 marks) (Total for Question Four = 25 marks) (Total for Section B = 50 marks) End of Question Paper Maths tables and formulae are on pages 19 to 22 Performance Strategy 17 March 2013

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19 Performance Strategy 19 March 2013

20 PRESENT VALUE TABLE Present value of $1, that is ( 1+ r ) n where r = interest rate; n = number of periods until payment or receipt. Periods Interest rates (r) (n) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% Periods Interest rates (r) (n) 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% March Performance Strategy

21 Cumulative present value of $1 per annum, Receivable or Payable at the end of each year for n years Periods (n) n 1 (1+ r ) r Interest rates (r) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% Periods (n) Interest rates (r) 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% Performance Strategy 21 March 2013

22 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 = r [1 + r ] n Perpetuity Present value of 1 per annum, payable or receivable in perpetuity, commencing in one year, discounted at r% per annum: PV = r 1 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 March Performance Strategy

23 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 VERBS USED DEFINITION Level 1 - KNOWLEDGE What you are expected to know. List Make a list of State Express, fully or clearly, the details/facts of Define Give the exact meaning of Level 2 - COMPREHENSION What you are expected to understand. Describe Communicate the key features Distinguish Highlight the differences between Explain Make clear or intelligible/state the meaning or purpose of Identify Recognise, establish or select after consideration Illustrate Use an example to describe or explain something Level 3 - APPLICATION How you are expected to apply your knowledge. Level 4 - ANALYSIS How are you expected to analyse the detail of what you have learned. Level 5 - EVALUATION How are you expected to use your learning to evaluate, make decisions or recommendations. Apply Calculate/compute Demonstrate Prepare Reconcile Solve Tabulate Analyse Categorise Compare and contrast Construct Discuss Interpret Prioritise Produce Advise Evaluate Recommend 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 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 Counsel, inform or notify Appraise or assess the value of Advise on a course of action Performance Strategy 23 March 2013

24 Performance Pillar Strategic Level Paper P3 Performance Strategy March 2013 March Performance Strategy