## Calculate Return on Investment (ROI) from the following details: Net Profit after Tax Rs. 6,50,000; Rate of Income Tax 50%; 10% Debentures of Rs. 100 each Rs. 10,00,000; Fixed Assets at cost Rs. 22,50,000; Accumulated Depreciation on Fixed Assets up to date Rs. 2,50,000; Current Assets Rs. 12,00,000; Current Liabilities Rs. 4,00,000.

SOLUTION

Net Fixed Assets = Fixed Assets (at cost) − Accumulated Depreciation
= 22,50,000 − 2,50,000
= 20,00,000

Capital Employed = Net Fixed Assets + Current Assets − Current Liabilities
= 20,00,000 + 12,00,000 − 4,00,000
= 28,00,000

Interest on 10% Debentures = 10% of 10,00,000
= 1,00,000

Let Profit before Tax be = x
Profit after Tax = Profit Before Tax − Tax
Tax Rate = 50%
∴ Tax = 0.5 x
x − 0.5 x = 6,50,000
x = 13,00,000

Net Profit before Tax = = 13,00,000
Profit before Interest and Tax = Profit before Tax + Interest on Long-term Debt
= 13,00,000 + 1,00,000
= 14,00,000

Return on Investment = (Net profit Before Interest and Tax × 100) / Capital Employed
= (1400000 /  2800000) X 100
= 50%