Pearson Brothers recently reported an EBITDA of $9.0 million and net income of $2.7 million. It had $2.34 million of interest expense, and its corporate tax rate was 40%. What was its charge for depreciation and amortization?
Could I get someone to help me on setting this up. I look at it on the income statement but can not get the numbers to equal out correctly. Thanks in Adavance
To calculate the charge for depreciation and amortization, we first need to understand that EBITDA stands for "earnings before interest, taxes, depreciation, and amortization." This means that EBITDA already includes the charges for interest, taxes, and depreciation and amortization.
Given that Pearson Brothers reported an EBITDA of $9.0 million, we can assume that the $9.0 million already includes the charge for depreciation and amortization. Therefore, we do not need to calculate it separately.
To summarize:
- EBITDA: $9.0 million
- Interest expense: $2.34 million
- Net income: $2.7 million
- Corporate tax rate: 40%
The charge for depreciation and amortization is already included in the reported EBITDA of $9.0 million. There is no need to calculate it separately.
Sure! Let's break down the information given and calculate the charge for depreciation and amortization.
1. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is reported as $9.0 million. EBITDA is calculated by adding back interest, taxes, depreciation, and amortization to the net income. So, we need to determine the sum of all these components.
2. Net income is reported as $2.7 million.
3. Interest expense is given as $2.34 million.
4. The corporate tax rate is mentioned as 40%.
To find the charge for depreciation and amortization, we need to remove the interest expense and taxes from EBITDA.
Step 1: Start with Net Income
Net Income: $2.7 million
Step 2: Add Back Interest Expense
EBIT (Earnings Before Interest and Taxes) = Net Income + Interest Expense
EBIT = $2.7 million + $2.34 million = $5.04 million
Step 3: Calculate EBITDA
EBITDA = EBIT + Depreciation and Amortization
$9.0 million = $5.04 million + Depreciation and Amortization
Now, we can calculate the depreciation and amortization charge by rearranging the equation:
Depreciation and Amortization = EBITDA - EBIT
Depreciation and Amortization = $9.0 million - $5.04 million
Depreciation and Amortization = $3.96 million
Therefore, the charge for depreciation and amortization for Pearson Brothers is $3.96 million.