Question

Net profit after tax is ₹ 1,20,000; 10% Debentures are of ₹ 2,00,000; Capital Employed is ₹ 16,00,000. Rate of tax is 40%. Return on Investment (ROI) will be ______.

विकल्प

• 20%

• 25%

• 22%

• 13.75%

Answer 1

Net profit after tax is ₹ 1,20,000; 10% Debentures are of ₹ 2,00,000; Capital Employed is ₹ 16,00,000. Rate of tax is 40%. Return on Investment (ROI) will be 13.75%.

Explanation:

Given:

Net Profit After Tax = ₹ 1,20,000

Rate of Tax = 40%

10% Debentures = ₹ 2,00,000

Capital Employed = ₹ 16,00,000

$$\begin{aligned} \text{Profit Before Tax (PBT)} &= \frac{\text{Net Profit After Tax}}{1 - \text{Tax Rate}} \\ &= \frac{1,20,000}{1 - 0.40} = \frac{1,20,000}{0.60} \\ &= {₹\ 2,00,000} \end{aligned}$$ 

$$\begin{aligned} \text{Interest on Debentures} &= 10\% \text{ of } 2,00,000 \\ &= {₹\ 20,000} \end{aligned}$$ 

$$\begin{aligned} \text{Profit Before Interest and Tax (PBIT)} &= \text{Profit Before Tax} + \text{Interest} \\ &= 2,00,000 + 20,000 \\ &= {₹\ 2,20,000} \end{aligned}$$ 

Now, the Return on Investment (ROI) formula is:
$$\begin{aligned} \text{Return on Investment (ROI)} &= \frac{\text{Profit Before Interest and Tax (PBIT)}}{\text{Capital Employed}} \times 100 \\ &= \frac{2,20,000}{16,00,000} \times 100 = {13.75\%} \end{aligned}$$