Mr inherited 20,00,000 from his uncle. He puts all the money into his new business, Limited, which starts to generate yearly revenue of 25,00,000 and earns him an operating profit of 3,00,000 per annum leading to a 15% return on assets. Mr was happy to see the return on his asset go up from 3% to 15% and was satisfied with it. JGBS continued to distribute all the earnings from the business as dividends because Mr was able to generate the same 15% return through other investments outside of the business and believed that the diversification reduced his risk. However, the business faced a downturn as the economy slowed down. Mr realizes that JGBS return on assets reduced sharply from 15% to 12% when revenue fell marginally to 24,00,000. He did not like the sharp decline in his dividend earnings and wanted to understand the cause so that he could fix it. He consulted with BBA Consultants. They advised that JGBS has a very high fixed cost. If JGBS wanted to reduce exposure to a decline in sales it needed to change the operating model to make more of its costs variable.

What is the value of JGBS? [2]

What is the fixed cost of JGBS? [4]