On the basis of the following information, answer the question :

Return on Investment will be :

22.5%

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%