Pearson Brothers recently reported an EBITDA of $7.5mil and net income of $1.8million. It had $2.0 mil of interest expense, and its corporate tax rate was 40%. What was its charge for depreciation and amortization?

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saniaahmed saniaahmed · Answer 1 · 2020-01-24T06:24:30+01:00

Answer:

Depreciation and Amortization charge of Pearson Brothers is $2.5 M.

Please note that all figures are reported dollars in Millions, where M denotes Millions

Explanation:

EBITDA – Depreciation & Amortization = EBIT

EBIT – Interest Expense = EBT

EBT – Tax Expense = Net Income

Now, Inputting values in the equations:

EBT – Tax Expense = Net Income

EBT – (40% of EBT) = Net Income

EBT – 40% EBT = $1.8 M

60% EBT = $1.8 M

EBT = $1.8 M ÷ 60%

EBT = $3.0 M

EBIT – Interest Expense = EBT

EBIT – $2.0 M = $3.0 M

EBIT = $3.0 M + $2.0 M

EBIT = $5.0

EBITDA – Depreciation & Amortization = EBIT

$7.5 M – Depreciation & Amortization = $5.0

$7.5 M – $5.0 = Depreciation & Amortization

Depreciation & Amortization = $2. 5 M

Solution in Statement form is also presented below (calculations based on reverse working)

EBITDA $7.5 M

Depreciation & Amortization $2.5 M

EBIT $5.0 M

Interest Expenses $2.0 M

EBT $3.0 M

Tax (40%) $1.2 M

Net Income $1.8 M