also announced free water for three months (April to June 2020) to all citizens consistent with the health protocols of washing hands as often as possible under running water though one-third of the African population cannot wash their hands simply because of lack of running water. For the three months, electricity has been zero-rated for lifeline consumers (from 0-50 kilowatt-hours a month consumption) whilst all other categories of consumers enjoy a 50% subsidy. Given the enhanced exposure of frontline workers as a result of the pandemic, the government also offered tax exemptions amounting to 50% of their basic salary for the three months translating to fiscal loses of GHS 288.6m including additional allowances for frontline health personnel covering March, April, May, and June for the year 2020 (amounting to GHS 51 million). But the Accountant has complained for his exclusion from the list of beneficiaries. Bank of Ghana (BOG) also responded by reducing the policy rate by 150 basis points as well as reducing the Primary Reserve Requirement from 10% to 8%. His bank loan is indexed to the primary reserve requirement and varies accordingly. Given the above and your own understanding of recent development with respect to Covid-19: Attempt the following questions (you are free to make reasonable assumptions) A) How much net income must be expected to warrant starting the business? (3 Marks) B) Estimate the Weighted Average Cost of Capital (WACC) of the business before and after Bank of Ghana's Covid-19 intervention and interpret your results. Assume a tax rate of 25% (10 Marks) Ascertain the minimum profit the business must make in order to satisfy providers of capital before and after BoG's Covid-19 intervention. i. (5 Marks) D) Using your understanding of risk and returns, is the complaint of his exclusion from the tax rebate justified (3 Marks) E) Discuss how government's Covid-19 fiscal stimulus would benefit his business and how he can take advantage of them. (8 Marks) also announced free water for three months (April to June 2020) to all citizens consistent with the health protocols of washing hands as often as possible under running water though one-third of the African population cannot wash their hands simply because of lack of running water. For the three months, electricity has been zero-rated for lifeline consumers (from 0-50 kilowatt-hours a month consumption) whilst all other categories of consumers enjoy a 50% subsidy. Given the enhanced exposure of frontline workers as a result of the pandemic, the government also offered tax exemptions amounting to 50% of their basic salary for the three months translating to fiscal loses of GHS 288.6m including additional allowances for frontline health personnel covering March, April, May, and June for the year 2020 (amounting to GHS 51 million). But the Accountant has complained for his exclusion from the list of beneficiaries. Bank of Ghana (BOG) also responded by reducing the policy rate by 150 basis points as well as reducing the Primary Reserve Requirement from 10% to 8%. His bank loan is indexed to the primary reserve requirement and varies accordingly. Given the above and your own understanding of recent development with respect to Covid-19: Attempt the following questions (you are free to make reasonable assumptions) A) How much net income must be expected to warrant starting the business? (3 Marks) B) Estimate the Weighted Average Cost of Capital (WACC) of the business before and after Bank of Ghana's Covid-19 intervention and interpret your results. Assume a tax rate of 25% (10 Marks) Ascertain the minimum profit the business must make in order to satisfy providers of capital before and after BoG's Covid-19 intervention. i. (5 Marks) D) Using your understanding of risk and returns, is the complaint of his exclusion from the tax rebate justified (3 Marks) E) Discuss how government's Covid-19 fiscal stimulus would benefit his business and how he can take advantage of them. (8 Marks)
