Question

•   The mubarkyh firm is an established Korean multinational automaker that has its main headquarters in Korea
•   It was founded by Henry Michigan and incorporated on June 16, 1919 and had ever since been selling automobiles and commercial vehicles under the Volvo brand to the world.
•   The UAE has been one of mubarkyh most loyal customers since the 1980’s.
•   You work as a financial analyst and have recently been placed onto an assignment with the mubarkyh Company.
•   According to the most recent financial statements, the mubarkyh Company has reported a net loss of $6,800.
•   The firm’s earnings before interest, tax, depreciation & amortization are positive and amount to $50,000.
•   The amount of debt outstanding that the company has borrowed from the HSBC bank at the 6% interest rate is $25,000.   
•   The applicable corporate tax rate used by the mubarkyh Company is 15%.
•   In answering the questions below, show all the formulas used and calculations, along with the final answer.
a.   Calculate the amount of taxes that the Volvo Corporation owes to the taxation office.           
Explain what this means for the company.                                (1 point)

b.   Determine the level of the company’s pre-tax profit.                           (1 point)

c.   Calculate the amount annual interest expense that the Volvo company owes to HSBC.            (1 point)

d.   Estimate the level of the company’s operating profit.                         (1 point)

e.   Calculate the level of the firm’s depreciation and amortization expense.                    (1 point)

Answer 1

a) Here, PAT = EBT* (1-0.15)

and Taxes = EBT *0.15

So, Taxes = PAT*0.15/(1-0.15)

=-6800*0.15/0.85

= - $1200

So, Volvo Corporation owes -$1200 to the taxation office. This means that there is a net credit available to the company from the taxation office for a value of $1200

b) Pre tax profit or EBT = PAT +Taxes

= -$6800 -$1200 = -$8000

c) Amount of annual interest expense = $25000 *6% =$1500

d) Operating Profit = EBIT = EBT +Interest expense = -$8000+ $1500 = -$6500

e) Depreciation and Amortization expenses = EBITDA - EBIT

= $50000 - (-$6500) = $56500

answered by: anonymous