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Business Studies · 2023 · 4 marks
CBSE 2023 · Region 1 · Set 1 · Q26
X Ltd.' issued 14% Debentures of and 60,000 Equity shares of each. This investment 2,00,000 resulted in a net profit of before interest and tax. The…
X Ltd.' issued $\displaystyle 14$% Debentures of and
`$\displaystyle 60$
,$\displaystyle 000$ Equity shares of each. This investment
`$\displaystyle 2,00,000$
resulted in a net profit of before interest and
tax. The tax rate was $\displaystyle 50$%.
(a)
Calculate the 'Return on Investment’ and ‘Earning
per Share’ of ‘X Ltd.’
(b)
State with reason whether the above example is that
of favourable or unfavourable financial leverage.
Marking-scheme solution
(a)
Return on Investment
= Profit before interest and tax or EBIT x $\displaystyle 100$
Capital employed or Total Investment
= $\displaystyle 2,00,000$ x $\displaystyle 100$
$\displaystyle 10,00,000$
=$\displaystyle 20$%
Earning per share = Profit after interest and tax
Number of equity shares
= $\displaystyle 2,00,000$ – $\displaystyle 56,000$ – $\displaystyle 72,000$
$\displaystyle 10,000$
`
(b) = $\displaystyle 7.20$ per share
It is a case of favourable financial leverage as the ROI >
Rate of interest.
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CBSE Class 12 Business Studies past-paper question from the 2023 board exam, with the answer as CBSE’s own marking scheme gives it. Where our answers come from.