Question

Patterson Brothers recently reported an EBITDA of $12.5 million and net income of $2.1 million. It had $2.0 million of interest expense, and its corporate tax rate was 30%. 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:

$7,500,000 or $7.5 million

Explanation:

Given that,

EBITDA = $12.5 million

Net income = $2.1 million

Interest expense = $2.0 million

Tax rate = 30%

Earning before tax (EBT):

= Net income ÷ (1 - Tax rate)

= $2,100,000 ÷ (1 - 30%)

= $3,000,000

Earning before interest and tax (EBIT) to target EBT:

= EBT + Interest expense

= $3,000,000 + $2,000,000

= $5,000,000

EBIT = EBIT DA  - Depreciation and amortization

$12,500,000 = $5,000,000 - Depreciation and amortization

Depreciation and amortization = $12,500,000 - $5,000,000

                                                   = $7,500,000 or $7.5 million