Net Profit after tax Rs. 60,000; 10% Long-term debt Rs. 10,00,000; and Tax rate 40%. The net profit before interest and tax is.
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Rs. 200,000
Net profit before interest and tax is found by working backwards from the profit after tax: first add back the tax to get profit before tax, then add back the interest on long-term debt.
Net profit before tax = Net profit after tax × 100/(100 − tax rate)
= Rs. 60,000 × 100/60 = Rs. 1,00,000
Interest on long-term debt = 10% of Rs. 10,00,000 = Rs. 1,00,000
Net profit before interest and tax = Rs. 1,00,000 + Rs. 1,00,000 = Rs. 2,00,000
The book’s illustration uses 15% debt, so its interest is Rs. 1,50,000 and its answer Rs. 2,50,000; with the 10% of this question the interest is only Rs. 1,00,000.
NCERT (2026-27 edition):
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