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ABC Ltd. firm has a sales of Rs.6 crores, Variable cost Rs.
3.5 crores and Fixed cost of Rs. 0.65 crores.
The firm has debt and equity resources worth of Rs.7 crores
and 10 crores respectively. With the
data given show :
(i) The firm’s ROI.
(ii) EBIT if sales decline to Rs.4 crores.
(iii) If the industry’s assets turnover is 4 times, does the
firm has high or low asset turnover? The
cost of debt is 12%. Ignore taxation.
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Answer Posted / chirag patodi
Sales 6.0
Less: Variable Cost 3.5
Contribution 2.5
Less: Fixed Cost 0.65
EBIT 1.85
Less: Interest 0.70
EBT 1.15
Total Investment = Debt + Capital = 7 + 10 = 17 crores
(i) Return on Investment (ROI) =
1.85/17= 10.88%
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