On the basis of the following information, answer the question :
|
Particulars |
Amount (Rs.) |
|
Share Capital : |
|
|
Equity share capital (Rs. 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%.
Debenture = 12,00,000
Interest rate = 10%
Interest = 12,00,000 x 10/100
= 1,20,000
Profit before interest and tax = Net profit after tax + Debenture interest + Tax
= 4,50,000 + 1,20,000 + 1,50,000
= 7,20,000
Capital Employed = Equity Share Capital + Preference Share Capital + Reserves + 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 × 100
= 7,20,000/32,00,000 × 100
= 22.5%