1 Professional Level Essentials ModuleTime allowed: 3 hours 15 minutesThis question Paper is divided into two sections:Section A This ONE question is compulsory and MUST be attemptedSection B TWO questions ONLY to be attemptedDo NOT open this question Paper until instructed by the question Paper must not be removed from the examination P3 Business AnalysisSeptember/December 2016 Sample QuestionsThe Association ofChartered CertifiedAccountantsSection A This ONE question is compulsory and MUST be attempted1 IntroductionMan Lal relaxed in business class as the aircraft skimmed across the Uril Mountains. Generally he considered himselfa contented man. He had successfully built his company, Ling, to be the largest light bulb manufacturing companyin the world, with Global revenues of $750m.

2 From its factories in Lindisztan it supplied a worldwide market for LED(light emitting diodes) light bulbs. Lal congratulated himself on the fact that he had quickly spotted the potential ofLED light bulbs and had entered large-scale production whilst his rivals were still focusing their production oncandescent and halogen bulbs. The world now realised that LED light bulbs provided a cheaper, more energy efficient,greener solution than all of its alternatives. To that end, many countries had passed legislation requiring domestic andbusiness consumers to replace candescent light bulbs with greener equivalents. In fact, he was on his way right nowto Skod, a country which had passed efficient lighting legislation which, from 2017, banned the use of candescentbulbs in commercial premises and outlawed their production and importation after that date.

3 Domestic consumerswere expected to replace their candescent bulbs with newer technology as their bulbs failed. Man Lal confidentlyexpected that LED would be, for many, the newer technology of visit to Skod was of great significance to Man Lal because it was here that he did his business studies degree atSkodmore University. Indeed, he was due to give a lecture to the staff and students of the university the following dayand he felt great personal pride in returning to describe the extent of his success and the fulfilment of his personalambitions. He was also planning to visit a company called Flick which Ling was considering acquiring. This wouldbe a new growth method for Ling.

4 Up to now its worldwide expansion had been achieved by establishing whollyowned distribution companies in each targeted country. All production had remained in Lindisztan. However, forvarious reasons, Ling was now considering entering the Skod market by acquiring one of its light bulb producers, fact, remembering this brought a slight frown across Man Lal s face. To help fund his Global expansion, he had sold49% of Ling to institutional investors. These institutional investors required growth and high dividends and he washaving difficulty meeting their demands. There was now very little growth in the domestic Lindisztan market and thedistribution approach used to expand into foreign countries was taking a long time to mature.

5 The investors weredemanding quicker growth and acquisitions appeared to promise this. Despite paying high dividends over the last fewyears, the company still had significant retained profits and this was another issue for the institutional felt that this money should be used to promote growth and have agreed to a $400m acquisition fund. So,thought Man Lal, what better place to start those acquisitions than Skod, the place where I studied as a poor overseasstudent so many years ago. However, he had to admit to himself, he was still much happier with organic growththrough setting up his own distribution companies. Ling had made a few acquisitions in Lindisztan, but had neverbought a foreign company and he was worried about the risk of buffeted the aircraft as it made its final descent into the capital of Skod.

6 To distract himself, Man Lal pickedup the latest copy of Lighting Tomorrow, the research magazine of the light bulb industry. He skim read an article ontubular daylight lighting which promised to reduce the need for electric lighting by introducing more daylight into abuilding. Effective daylighting (it said) is achieved through the strategic placement of skylights and windows, as wellas lighting controls which monitor available daylight and respond as needed to decrease or increase electric I need to look into this, thought Man the airport, Man Lal took a taxi to his hotel. He could not help but notice that Skod was not as neat and tidy as itused to be. A lot of shops and buildings had been closed down and there was graffiti across many buildings andbridges.

7 Skod for Skodders , said one, Skod jobs for Skod people , said another. Man Lal remembered now that theSkod nationalist movement had become increasingly popular. He mentioned this to the taxi driver. Yes , he said, Mostpeople are fed up with Skod being pushed around by the International Financing Consortium (IFC), we want prosperityand jobs for people who grew up here. Slightly unnerved, Man Lal, checked in at the hotel. He switched on the television. He watched with interest as NiklasPerch, the newly elected nationalist leader of the Skod government, outlined his plans for the future. We are committed to a return to prosperity , he said. To achieve this we have to make some short-term adjustmentswhich may be unpopular with our trading partners.

8 We are currently considering the imposition of import taxes as away of protecting our home industry. We wish to create a protected commercial environment here in Skod in whichour companies can We must also ask our citizens to continue with their energy saving measures. As you know, the government hasagreed that all street lighting will be turned off from 2300 hours to 0500 hours. I have also decreed that allgovernment offices must proactively embrace energy saving lighting and heating. In the same way, I expect ourcitizens to look at ways of saving money and energy. The government also recognises that the country continues to be in a recession, and that disposable income is fallingfor all people.

9 However, I cannot condone the recent demonstrations against, and boycott of, foreign goods and foodproducts. We must rebuild our country peacefully and legally. I would ask all citizens to support me in this. Just then, the air conditioning failed and the television went off. Another energy failure in Skod. There were threefurther failures that night. The hotel manager apologised to Man Lal in the morning. I am sorry , he said but despitehigher energy prices, this is an increasing feature of life in Skod. Skod electric light bulb industryAll electric light bulbs are largely made out of glass and metal and this is likely to remain the same in the foreseeablefuture. In Skod, 90% of glass is produced by three companies.

10 However, for all of these three companies, light bulbmanufacturers are unimportant customers. Most glass manufacture goes to the construction industry, light bulbmanufacturers take less than 0 5% of the country s glass production. Metal manufacture in Skod is dominated by onecompany, OmniMetal. Most metal is sold to the automobile industry. Light bulb manufacturers take less than 0 1%of OmniMetal s production. However, the quality of glass and metal required by the light bulb manufacturers is quitestandard, so switching between suppliers is, in theory, relatively easy. Light bulb manufacture takes place in factorieswhich require substantial initial investment and have no obvious alternative Skod, light bulbs are low cost commodity products which are replaced infrequently by domestic consumers change their light bulbs a little more often and some businesses have recently switched alltheir bulbs to LED to save energy, reduce costs in the long term and to reflect their aspirations as green businesses.