Question

Patterson Brothers recently reported an EBITDA of $7.5 million and net income of $3 million. It had $1.5 million of interest expense, and its corporate tax rate was 25%. What was its charge for depreciation and amortization? Write out your answer completely. For example, 25 million should be entered as 25,000,000. Do not round intermediate calculations. Round your answer to the nearest dollar, if necessary.

Answer 1

Answer:

$2,000,000

Explanation:

EBT = Net income ÷ (1 - Tax rate)

       = $3,000,000 ÷ (1 - 0.25)

       = $4,000,000

EBIT = EBT + Interest

        =  $4,000,000 + $1,500,000

        = $5,500,000

EBIT = EBITDA - Depreciation and amortization

Depreciation and amortization = EBITDA - EBIT

                                                     = $7,500,000 - $5,500,000

                                                     = $2,000,000