Question

(a) Net Profit after interest but before tax 1,40,000; 15% long-term debt 4,00,000
shareholders' fund 2,00,000; and tax rate 50%. Find out the return on investment.
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Answer 1

return on investment = (net profit before interest and tax ÷ capital employed ) *100

= (rs. 2,00,000÷ rs. 6,00,00)* 100

= 33.3 %

33.3 %

Answer 2

Answer:

Return On Investment = 33.33 %

Explanation:

Given :

• Net Profit after interest but before tax = Rs. 1,40,000

• 15% long term debt Rs. 4,00,000

• Shareholders' fund = Rs. 2,00,000

• Tax rate = 50 %

Solution :

★ Calculate Return On Investment :

• ROI = Profit before Interest, Tax Dividend / Capital Employed X 100

• Return On Investment =

$\boxed{\sf{\dfrac{Profit \: before \: Interest \: Tax \: Dividend}{Capital \: Employed} \times 100}}$

Net Profit after interest but before tax = Rs. 1,40,000

$\sf{\longrightarrow{4,00,000 \: \times \dfrac{15}{100}}}$

$\longrightarrow$ 60,000

Net Profit before interest and tax =

$\longrightarrow$ 1,40,000 + 60,000

$\longrightarrow$ 2,00,000

Net Profit before interest and tax = 2,00,000

Capital Employed = Long term debt + Shareholder's fund

$\longrightarrow$ 4,00,000 + 2,00,000

$\longrightarrow$ 6,00,000

Capital Employed = 6,00,000

Return On Investment =

$\boxed{\sf{\dfrac{Profit \: before \: Interest \: Tax \: Dividend}{Capital \: Employed} \times 100}}$

$\sf{\longrightarrow{\dfrac{2,00,000}{6,00,000} \times 100}}$

$\longrightarrow$ 33.33

∴ Return On Investment = 33.33 %