Question

Nicholas Health Systems recently reported an EBITDA of $25.0 million and net income of $15.8 million. It had $2.0 million of interest expense, and its federal tax rate was 21% (ignore any possible state corporate taxes). What was its charge for depreciation and amortization

Answer 1

Answer:

Depreciation and Amortization= $3,000,000

Explanation:

Giving the following information:

Nicholas Health Systems recently reported an EBITDA of $25.0 million and a net income of $15.8 million. It had $2.0 million of interest expense, and its federal tax rate was 21%

We need to reverse engineer the net income calculation to determine the depreciation and amortization:

EBT= net income/(1-t)

EBT= 15,800,000/(1 - 0.21)

EBT= 20,000,000

EBIT= EBT + Interest

EBIT= 20,000,000 + 2,000,000

EBIT= 22,000,000

Now, we can determine D and A:

D and A= EBITDA - EBIT

DA= 25,000,000 - 22,000,000

DA= 3,000,000