Answer1

1) The following information is derived from the supplied question:

15 percent return on other investments

The assets value of JGBS can be calculated by adding up the

number of the company's activities, equipment, property, and
other assets. We can use the formula: since we know the return on
assets and operational profit
Average operating income Total Revenues Average 15 percent =
300000 Return on Assets = Total Assets
Average Total Assets = 300,001/ 16 percent
Average Total Assets = 2000000
As a result, JGBS now has a value of 2000000.

2) The fixed costs of this company are expenses that do not change
over time. This type of expense is billed for specific corporate
activities that do not change depending on the volume of items or
services sold. Rent, phone lines, property purchase, direct labour,
salary or permanent workers, and other administrative costs
involved with routine operational operations are all fixed costs for
JGBS.

3) JGBS and Mr. JGU should definitely go through with the

secondary factory because it will help JGBS increase its operational
profit by 1.5 percent, or 304500. JCBS would effectively cut its
interest expense to generate this operating income. Furthermore,
the company would only incur additional capital expenditures while
building the new facility, but it would generate better revenue in
subsequent years utilizing the same equipment throughout its life
cycle. As a result, JCBS might increase its rate of return from the
next plant onward.

4) Debt to Equity Ratio = 1500000 / 1000000 = 1.5

Because the debt to equity ratio is greater than one, JCBS should
not proceed with this asset base. This means that bondholders will
finance assets rather than capital, putting the company at risk
because it will have more commitments than holdings. The
company would take out a smaller bank loan and fund the
expansion of the factory with slightly more equity capital.

5) For the first year, Mr JGU would be discouraged due to low asset
returns from its commercial operations. As a consultant, he could
anticipate higher returns on assets in the coming years, as well as
operating profit comparable to his previous facility. As can be
observed, JGBS' ROA fell in the early years following the opening of
the first factory before stabilizing. As a result, Mr. JGU's ROA will
undoubtedly increase, as the company invests in new sophisticated
processes capable of significantly increasing operating revenue.
6) The counsellor should choose Modigliani-Millar as the most
effective strategy.

7) A total of $250,000,000 is necessary.

Value of Equity = 2550000 – 1550000 = ten million dollars in bank
loans

8) If he sells 40% of his equity in JGBS, he might get 40% of the

whole revenue, which is $1,000,000. His remaining shares in JGBS
would be worth $250,000.