Question

INCOME STATEMENT Patterson Brothers recently reported an EBITDA of $7.5 million andnet income of $2.1 million. It had $2.0 million of interest expense, and its corporate tax ratewas 30%. What was its charge for depreciation and amortization

Answer 1

Answer:

$ 1.75 million

Explanation:

EBITDA stands for Earnings  Before Interest, Tax, Depreciation and Amortization. Net Income is Earnings after Interest, Tax, Depreciation and Amortization.

So to find charge for depreciation and amortization we need to reconcile the EBITDA to the Net Income and find the missing figures,

Reconciliation of EBITDA to the Net Income

EBITDA                                                                                $7.5 million

Less Net income                                                               ($2.1 million)

Interest, Tax, Depreciation and Amortization                  $5.4 million

Less Interest expense                                                      ($2.0 million)

Less Corporate tax ($7.5 million - $2.0 million) × 30%  ($1.65 million)

Charge for depreciation and amortization                      $ 1.75 million