Question

Patterson Brothers recently reported an EBITDA of $11.5 million and net income of $3.3 million. It had $2.0 million of interest expense, and its corporate tax rate was 40%. What was its charge for depreciation and amortization?

Answer 1

Answer:

Explanation:

The P&L structure is:

(+)Earnings

(-)Cost

Gross Income

(-)Administrative expenditures

Earnings before interests, taxes, depreciation and amortization (EBITDA)

(-)Depreciation and amortization

Earnings before interests and taxes (EBIT)

(+) No- operational earnings

(-) No- operational expenditures

Earnings before taxes (EBT)

(-)Taxes

Net income

Then, to find the depreation and amortization expenditure you must:

First, find earnings before taxes (EBT):

EBT- EBT*40% = 3.3 million

EBT(1-40%)= 3.3 million

EBT= 3.3/60%

EBT= 5.5 million

Interest expenses are no- operational expenditures. Since there are not no- operational earnings, then:

EBIT= EBT+interest expenses

EBIT= 5.5+ 2

EBIT= 7.5 million

Finally, the depreciation and amortization expenditure is the difference between EBIT and EBITDA:

Depreciation and amortization= 11.5-7.5

D&A= 4 million