Employees are being given the opportunity to improve their competences by going back to School for one year. Upon completion, due to expected improvement in their productivities, they can expect to earn GHS 13,200 in salary during the first year that they are back at work relative to the GHS 12,000 they would have earned had they not gone back to School. Over the next four years, they can expect their salaries to increase by 10% each year, while their colleagues who did not go back to School would get 8% salary increases. Income tax on earnings of those who went back to school would be 12% of their new salary, compared to 10% for their colleagues who did not undergo further training.

Complete Table 1a, by computing the values represented by * in the various cells, then move on and complete Table 1b. Table 1b is similar to one we did in class. In calculating present values, assume that the risk-free rate in the economy is 15% and a risk premium of 5% was judged to be adequate to compensate for inherent risks.

Column one of Table 1b lists the items Benefits and Costs. Use combination of data provided in Table 1b and your computations in Table 1a to complete the cells with---- in Table 1b.

Questions

i. What proportion of TOTAL COSTS is being borne by each Stakeholder?

ii. What proportion of NET BENEFITS is being realised by each Stakeholder?

iii. Were you an employee, would you opt to be a participant?

iv. Why do you think Government is supporting this project?

Year 2 3 Year 4 Year 5 rear in school 0 Year! 13,200 0 0 . 0 . New Salary Tax on New Salary New Net Salary PV of New Net Salary Sum PV New Net Salary PV of Tax on New Salary Sum PV of Tax onNEW Salary Old Salary Tax on OLD Salary Net Old Salary PV of OLD Net Salary Sum PV OLD Net Salary PVOLD Tax Sum PV of Tax on OLD Salary 10,800 12,000 . . . Society nmen 0 0 0 Table 1b: Present values of costs and benefits to Educati Gover Benefits and costs Participants onal PV New Net Salary 0 PVOLD Salary Tuition and fees ges (925) Investment costs 543 100 Transfers from Government (487) TOTAL COSTS stakeholders NETBENEATS * Carefully identify costs. 0 0 487 .... Year 2 3 Year 4 Year 5 rear in school 0 Year! 13,200 0 0 . 0 . New Salary Tax on New Salary New Net Salary PV of New Net Salary Sum PV New Net Salary PV of Tax on New Salary Sum PV of Tax onNEW Salary Old Salary Tax on OLD Salary Net Old Salary PV of OLD Net Salary Sum PV OLD Net Salary PVOLD Tax Sum PV of Tax on OLD Salary 10,800 12,000 . . . Society nmen 0 0 0 Table 1b: Present values of costs and benefits to Educati Gover Benefits and costs Participants onal PV New Net Salary 0 PVOLD Salary Tuition and fees ges (925) Investment costs 543 100 Transfers from Government (487) TOTAL COSTS stakeholders NETBENEATS * Carefully identify costs. 0 0 487