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‘Ratan Ltd.’ and… (Class 12 Business Studies 2026, Q27)

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Business StudiesCBSE Class 12 · Board exam 2026, set 66/5/1 · 4 marks · Long answer

CBSE Class 12 Business Studies 2026: question 27

Set in the CBSE Class 12 board exam of 2026, paper 66/5/1, section B, question 27, for 4 marks. Try it first; the hints and our step-by-step solution are below.

Q27 · 4 marks · Long answerCompetency-basedFinancial Management

‘Ratan Ltd.’ and ‘Lara Ltd.’ are two companies with each having a capital employed of ₹ 20,00,000. ‘Ratan Ltd.’ had raised funds by issuing shares whereas ‘Lara Ltd.’s’ capital has 60% equity (in shares of ₹ 100 each) and 40% debt (comprising of 8% debentures). Both the companies have a Return on Investment of 10% and the tax rate is 40%.

State with reason which company will be able to give a better return to the shareholders. Show your calculations clearly.

Source: official question paper from cbse.gov.in (PDF). See it in the full 2026 board paper, set 66/5/1.

Hints

Open one hint at a time and try again before the next.

Hint 1

EBIT = ROI × capital employed.

Hint 2

Interest is deducted before tax.

Hint 3

Compare ROI with the rate of interest.

Step-by-step solution

Each step shows the marks it earns, as an examiner would award them. Checked by an independent re-solve from the question paper.

  1. Capital: Ratan Ltd: equity ₹20,00,000 (20,000 shares of ₹100). Lara Ltd: equity 60% = ₹12,00,000 (12,000 shares of ₹100) and 8% debentures 40% = ₹8,00,000.

    ½ mark

  2. EBIT = 10% of ₹20,00,000 = ₹2,00,000 for each. Interest: Ratan nil; Lara 8% × 8,00,000 = ₹64,000. EBT: Ratan ₹2,00,000; Lara ₹1,36,000.

    1 mark

  3. Tax @ 40%: Ratan ₹80,000, EAT ₹1,20,000; Lara ₹54,400, EAT ₹81,600.

    ½ mark

  4. EPS = EAT ÷ number of shares: Ratan = 1,20,000 ÷ 20,000 = ₹6; Lara = 81,600 ÷ 12,000 = ₹6.80.

    1 mark

  5. Lara Ltd. will give a better return to its shareholders.

    ½ mark

  6. Reason: Lara has debt in its capital structure and its ROI (10%) is higher than the cost of debt (8%), so trading on equity raises EPS.

    ½ mark

Answer: Lara Ltd: EPS ₹6.80 against ₹6 for Ratan Ltd, because ROI (10%) exceeds the cost of debt (8%).

Where the marks are

  • Calculations of EAT and EPS (3)
  • Conclusion (½) + reason (½)

Revise the chapter

Practise this chapterBoard-style questions from Financial Management, one at a time, marked against the answer key and marking points.Back to the full paper2026 board paper, set 66/5/1: every question, by section.

The question is transcribed from the official paper; figures are described in words. The solution, hints and chapter tag are ours. Spotted an error? Write tosupport@questionbuddy.in.