On the basis of the following information, answer the question.
| Particulars | Amount (₹) |
| Share Capital: | |
| Equity share capital (₹10 each) | 12,00,000 |
| 12% Preference share capital | 3,00,000 |
| Reserves & Surplus | 5,00,000 |
| 10% Debentures | 12,00,000 |
| Current Liabilities | 3,00,000 |
| Fixed Assets | 28,00,000 |
| Current Assets | 7,00,000 |
| Net profit after tax as per Statement of Profit & Loss | 4,50,000 |
| Tax | 1,50,000 |
| Market Price of the Share | 34 |
Return on Investment will be:
Answer & explanation
Correct answer: option 2
The correct answer is option 2- 22.5%.
Profit before interest and tax = Profit after tax + Tax + Interest on debentures
= 4,50,000 + 1,50,000 + 1,20,000
= 7,20,000
Capital employed = Long term debts + shareholders funds
= Equity Share Cap + Preference Share Cap + Reserves & surplus+ debentures
= 12,00,000 + 3,00,000 + 5,00,000 + 12,00,000
= 32,00,000
Return on Investment = Profit before Interest and Tax/Capital Employed x 100
= 7,20,000/32,00,000 x 100
= 22.5%