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Transcription of this question: 2.BP and the Gulf of MexicoIn May 2010, the Oil company BP suffered a major disaster while drilling for Oil Off the coast OfLouisiana, United States (US) in the Gulf Of Mexico. The drilling platform exploded and wasdestroyed, killing 1 1 workers. Millions of tonnes Of Oil spilled out into the sea. This was the worstindustrial accident BP had ever faced. Subsequently the price Of BP shares fell by 30%.It took BP three months to stop the leak in the Oil well. The Oil spill had a major negative impact onfish, birds and the whole ecosystem. Regional fishermen, seafood restaurants and the tourist industrywere the first to suffer from the impact Of the pollution and demanded compensation.This was a public relations (PR) crisis for BP. The US media attacked the company on a daily basis.Environmental pressure groups called for a ban on deep water Oil drilling and even the US presidentgot involved, announcing on television that BP would be “made to pay heavily”. The perceptionwas that BPS crisis management was slow, uncaring and inefficient. For example, Tony Hayward,the Chief Executive Officer (CEO) Of BP was reported to have said that the Oil spill ‘ ‘was tiny”and on another occasion he complained Of stress and said he “would like his life back”. However,to solve the problem in deep water was a very technical exercise, which had never been attemptedbefore. As a result of this PR crisis, BP decided not to give dividends to its shareholders in 2010.BP has identified the following as causes Of the decline in financial performance:• the loss Of the Oil drilling platform• the cost Of stopping the leak 250 metres below the sea• the cost Of the clean-up operations• the fall in share price• the loss of brand image and goodwill• compensation paid to regional businesses• compensation paid to the families Of the workers killed.Selected items from BPS balance sheet as at 31 December 2009 (IJSS millions) (before the disaster).CashCreditorsDebtorsDepreciationFixed assetsLoan capitalRetained profitShare c italShort-term borrowinStock500030 ooo35 ooo40 ooo250 ooox72 ooo10000029 ooo25 oooIC International Baccalaureate Organization, 2013](This question continues on the following page)(Question 2 continued)(a)(b)(c)(d)Outline the importance Of the balance sheet to two stakeholder groups of BP.(i) Using the information in the selected items from BPS balance sheet,calculate the loan capital (figure X) and construct a balance sheet for BPas at 31 December 2009.(ii) Explain how two Of the financial consequences Of the disaster will appearon BPS balance sheet as at 31 December 2010.Explain three possible ways in which BP’s marketing department couldhave better managed the public relations (PR) crisis, to limit the damage toBP reputation.The table below shows selected ratios for BP for 2008 to 2010:[4 marks][5 marks][4 marks][6 marks]RatioLiquidity:Acid test ( uick ratioGearingShareholder:Dividend yield (0/0)Profitability:inNet roflt20080.719511.420090.820512.320100.4354.5IC Intemational Baccalaureate Organization, 20131Using relevant information and the ratios above, analyse the likely impacts Ofthe disaster on BP future financial performance.[6 marks]

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