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2.(b) By definition, the return on equity (ROE) is the profit after tax divided by the owners' equity. Show that the ROE, can be written
2.(b) By definition, the return on equity (ROE) is the profit after tax divided by the owners' equity. Show that the ROE, can be written as: D(ROIC 2') ROE = ROIC + E ROIC = return on invested capital i' = after-tax interest rate D = interest-bearing debt E= book value of equity (Hint: i' = (1 t)i where i is the interest rate on the debt and t is the tax rate [5 points]
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