Read the following information and answer the following questions.
Net profit after tax = ₹6,50,000
12.5% debentures = ₹8,00,000
Income tax = 50%
Fixed assets at cost = ₹24,60,000
Depreciation reserve = ₹4,60,000
Current assets = ₹15,00,000
Current liabilities = ₹7,00,000
Capital employed = ₹28,00,000
Calculate the return on investment from the above information.
Answer & explanation
Correct answer: option 1
The correct answer is option 1- 50%.
Return on Investment (or Capital Employed) = Profit before Interest and Tax/ Capital Employed × 100
= 14,00,000/28,00,000 X 100
= 50%
* Net profit after tax = ₹6,50,000
Net profit before tax = 6,50,000 X100/50
= ₹13,00,000
Interest = 8,00,000 X 12.5/100 = ₹1,00,000
So, net profit before interest and tax = 13,00,000 + 1,00,000
= ₹14,00,000