ABC Manufacturing Limited produces industrial components with a well-established market presence. The company operates under a special tax-free…
CA Intermediate · Financial Management and Strategic Management · RTP · May 2026
ABC Manufacturing Limited produces industrial components with a well-established market presence. The company operates under a special tax-free status granted by the government, which exempts it from corporate income tax obligations. Financial Information The company's financial parameters for the current fiscal year are as follows: Capital Structure Details Total Capital Invested:20,00,000 (20 lakhs)Cost of Equity (K e ): 12% per annumCost of Debt (K d ): 6% per annumWeighted Average Cost of Capital (WACC): 9% per annum Operational Information Annual Sales Revenue:24,00,000 (24 lakhs)Variable Costs: 50% of sales revenueFixed Costs:10,00,000 (10 lakhs) per annum General corporate tax is 25% As a financial analyst, you have been tasked with conducting a comprehensive financial analysis of ABC Manufacturing Limited. Specifically, you are required to: iii. CALCULATE the Return on Investment (ROI) to assess how efficiently the company is utilizing its total capital invested.
Suggested Answer and Working Notes:
Return on Investment = EBIT/ Capital employed = 2,00,000/20,00,000 = 10% Cost of debt = 6% 10% 12% Return on Investment = EBIT/Capital employed 10% 10% 10%
Topics: Part-A: Financial Management
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