Question

Patterson Brothers recently reported an EBITDA of $17.5 million and net income of $2.8 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. Round your answer to the nearest dollar, if necessary. Do not round intermediate calculations.

Answer 1

Step-1, Net Income Before Tax

Net Income Before Tax = Net Income After Tax / (1 – Tax Rate)

= $2,800,000 / (1 – 0.30)

= $2,800,000 / 0.70

= $4,000,000

Step-2, Earnings Before Interest and Tax

Earnings Before Interest and Tax = Net Income Before Tax + Interest Expenses

= $4,000,000 + $2,000,000

= $6,000,000

Step-3, Depreciation and Amortization charges

Earnings Before Interest and Tax = EBITDA - Depreciation and Amortization charges

$17,500,000 = $6,000,000 - Depreciation and Amortization charges

Depreciation and Amortization charges = $17,500,000 - $6,000,000

Depreciation and Amortization charges = $11,500,000

“Hence, the Depreciation and Amortization charges will be $11,500,000”