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Nicholas Health Systems recently reported an EBITDA of $28.0 million and net income of $15.8 million. It had $3.0 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

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The charge for depreciation and amortization is $5 million.

What is EBITDA?

EBITDA is earnings before income, taxes, depreciation and amortization. It is used to determine the overall health of a firm.

EBITDA = net income + taxes + interest + depreciation + amortization

What is the charge for depreciation and amortization?

The first step is to determine the value of earnings before tax.

Earnings before tax = $15.8 million / (1 - 0.21)

$15.8 million / 0.79 = $20 million

The second step is to add interest expense to earnings before tax

$20 million + $3 million = $23 million

Subtract $23 million from $28 million

$28 million - $23 million = $5 million

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