1. Explain the fallowing statement: Our tax rates are progressive. 2. Differentiate between ROE and ROIC.

Solutions

Expert Solution

(1).

Our tax rates are progressive;

As we know that progressive tax rates system refers to the tax system under which higher tax will be charged on higher income groups whereas a lower tax rate will be imposed on low income groups.

So, it is clear that our tax rates are progressive because individuals have lower income will be taxed at low income tax rates whereas individuals have higher income will be taxed at higher income tax rates. This is because of progressive tax rates in our tax rates system.

(2).

Difference between ROE and ROIC;

As we know that both ROE and ROIC are the measure of profitability but both show different type of profitability. ROE measures only return on equity funds whereas ROIC measures return on total capital employed.

In other words we can say that when we divide net income by equity then we will get ROE whereas when we divide net income by total capital employed (Debt + Equity) then we will get ROIC.

Hence it is clear that ROIC is much wider measure of profitability in compare to ROE.

jeff jeffy answered 1 year ago

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