Based on following data related to Ambe limited, Jaipur, Answer question.
|
Particulars |
Amount (₹) |
|
Revenue from operations |
8,40,000 |
|
Cost of revenue from operations |
4,20,000 |
|
Selling Expenses |
80,000 |
|
Administrative Expenses |
40,000 |
|
Equity share capital |
1,00,000 |
|
8% preference share capital |
50,000 |
|
10% debentures |
1,00,000 |
|
Profit after Tax |
1,74,000 |
|
Tax Rate |
40% |
Determine Return on Investment.
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → 120%
Return on Investment = Profit before Interest and Tax / Capital Employed × 100
Profit before tax = Profit after tax / (1 − tax rate) = ₹1,74,000 / 0.60 = ₹2,90,000
Interest on 10% debentures = ₹1,00,000 × 10% = ₹10,000
Profit before interest and tax = ₹2,90,000 + ₹10,000 = ₹3,00,000
(Check: 8,40,000 − 4,20,000 − 80,000 − 40,000 = ₹3,00,000)
Capital employed = Equity ₹1,00,000 + Preference ₹50,000 + Debentures ₹1,00,000 = ₹2,50,000
Return on Investment = 3,00,000 / 2,50,000 × 100 = 120%