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A company has a loan of Rs.15,00,000 as part of its capital employed. The interest payable on Loan is 15% and the ROI of the company is 25%. The rate of income tax is 60%. What is the gain to shareholders due to the loan raised by the company?

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ROI = EBIT/ Capital EmployedEBIT = ROI × Capital Employed = 25% × 20,00,000 = 5,00,000 Intrest = 20,00,000 × 15% = 3,00,000 Shareholders Gain = EAT ( Earning After Tax) = (EBIT - Intrest) - Income Tax = (5,00,000 - 3,00,000) - 60% = 2,00,000 - 60% = 2,00,000 - 120,000 = 80,000Hence,...
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ROI = EBIT/ Capital Employed
EBIT = ROI × Capital Employed
= 25% × 20,00,000
= 5,00,000

Intrest = 20,00,000 × 15%
= 3,00,000

Shareholders Gain = EAT ( Earning After Tax)
= (EBIT - Intrest) - Income Tax
= (5,00,000 - 3,00,000) - 60%
= 2,00,000 - 60%
= 2,00,000 - 120,000
= 80,000
Hence, the gain the shareholders due to the loan raised by the company is RS. 80,000.

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ROI is25 % i.e. we get 25 % onOur capital invested. But we pay interest on loan 15 % so we get net gain of 10 %. Income tax rate is60% So on 10% we have to pay 10x 60/100 = 6 % so our net gain is 10 - 6 =4 %
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6000
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ROI = EBIT/ Capital EmployedEBIT = ROI × Capital Employed = 25% × 20,00,000 = 5,00,000 Intrest = 20,00,000 × 15% = 3,00,000 Shareholders Gain = EAT ( Earning After Tax) = (EBIT - Intrest) - Income Tax = (5,00,000 - 3,00,000) - 40% = 2,00,000 - 40% = 2,00,000 - 80,000 = 1,20,000Hence,...
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ROI = EBIT/ Capital Employed
EBIT = ROI × Capital Employed
= 25% × 20,00,000
= 5,00,000

Intrest = 20,00,000 × 15%
= 3,00,000

Shareholders Gain = EAT ( Earning After Tax)
= (EBIT - Intrest) - Income Tax
= (5,00,000 - 3,00,000) - 40%
= 2,00,000 - 40%
= 2,00,000 - 80,000
= 1,20,000
Hence, the gain the shareholders due to the loan raised by the company is RS. 1,20,000.

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Comments

ROI = EBIT/ Capital Employed EBIT = ROI × Capital Employed = 25% × 20,00,000 = 5,00,000 Intrest = 20,00,000 × 15% = 3,00,000 Shareholders Gain = EAT ( Earning After Tax) = (EBIT - Intrest) - Income Tax ...
read more

ROI = EBIT/ Capital Employed

EBIT = ROI × Capital Employed

         = 25% × 20,00,000

         = 5,00,000

 

Intrest = 20,00,000 × 15%

            = 3,00,000

 

Shareholders Gain = EAT ( Earning After Tax)

                                = (EBIT - Intrest) - Income Tax

                                = (5,00,000 - 3,00,000) - 40%

                                = 2,00,000 - 60% 

                                = 2,00,000 - 120,000

                                = 80,000

Hence, the gain the shareholders due to the loan raised by the company is RS. 80,000.

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Accounts Specialist

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rs.60000/-
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