a. Calculate and comment on gearing ratios for Jinegar PLC. Assume that net assets are equivalent to shareholder funds.

b. Modigliani and Miller (1963) describe a model in which companies prefer a higher gearing ratio in order to reduce corporation tax payments. Why might a firm nevertheless be reluctant to run with a very high gearing ratio?

2. (a) Calculate and comment on gearing ratios for Jinegar PLC. Assume that net assets are equivalent to shareholder funds. (80 Marks) m m 85,309 Non-current assets Current assets: Inventory Trade and other receivables Taxation recoverable Cash and cash equivalents 311 5,124 29 6,995 12,459 Current liabilities of which: (18,678) Short-term borrowings 4,758 Long-term borrowings (17,356) Other non-current liabilities (3,950) Net assets 57,784 Profit before interest and 9,400 taxation (ignoring good will impairment) Interest payable (1,632) Market capitalisation 95,600 (b) Modigliani and Miller (1963) describe a model in which companies prefer a higher gearing ratio in order to reduce corporation tax payments. Why might a firm nevertheless be reluctant to run with a very high gearing ratio? (20 Marks)