Question

Chartworth Associates' financial statements indicated that the company had EBITDA of $3,145,903. It had depreciation of $633,000, and its interest rate on debt of $1.25 million was 7.5 percent. Calculate the amount of taxes the company is likely to owe. (Round your final answer to the nearest dollar.)

Answer 1

Answer:

$822,512

Explanation:

For this question, the tax rate is as per schedule below

Tax Rate Taxable Income 15% $0 to $50,000 : 25% 50,001 - 75,000 :34 % 75,001 - 100,000:  39% 100,001 - 335,000 :34% 335,001 – 10,000,000: 35% 10,000,001 - 15,000,000: 38% 15,000,001 - 18,333,333 35

EBITDA represents earnings before interest, depreciation, and tax.

The amount to be taxed will be the EBITDA minus depreciation and the interest amount.

The interest to be paid is 7.5 % of $1,25 million

=7.5% x 1,250,000

=$93,750

taxable amount will be

=$3,145,903 - $93,750 - $633,000

=$2,419,153

According to the tax schedule, the rate applicable is 34%

The tax amount will be 34% of $2, 419,153

=34/100 x $2, 417,153

=.34 x $2,419,153

=$822,512.02