n NISM Certifications
XV NISM Series XV
Medium

A company has a Return on Equity (ROE) of 16%, Return on Capital Employed (ROCE) of 20%, Net Profit of Rs. 160,000, and EBIT of Rs. 250,000. If the company pays 10% annual interest on its debt, what is the total interest paid during the year?

Practice question from NISM XV Mock Test 7 — bank. The correct answer is highlighted below with a full explanation.

Options

  1. A

    Rs. 18,500

  2. Rs. 25,000

    Correct answer

  3. C

    Rs. 31,000

  4. D

    Rs. 36,500

Why this is the answer

Interest can be calculated step by step. First, equity is found using ROE: Equity = Net Profit ÷ ROE = 160,000 ÷ 0.16 = Rs. 1,000,000. Next, total capital employed is calculated using ROCE: Capital Employed = EBIT ÷ ROCE = 250,000 ÷ 0.2 = Rs. 1,250,000. The debt is the difference between capital employed and equity: Debt = 1,250,000 – 1,000,000 = Rs. 250,000. Finally, interest paid is 10% of debt: 0.10 × 250,000 = Rs. 25,000.

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