Question

Q1 (2 marks)

Altamimi Company’s net income for the year 2000, is $3,700,214. The company had an EBITDA of $ 10,125,300, and its depreciation and amortization expense was equal to $2,543,790. The company's average tax rate is 35 percent.

1. What is the amount of interest expenses for the firm? (Show the details of your calculations).
2. Prepare a common sized Income Statement if sales equal $12,000,000.

Q2. (2 Marks)

The following are accounts balance (in thousands) for Malak Company. Prepare a balance sheet, and Income statement using intermediate steps t=35% for the year ended December 31, 2018.

Net property and equipment	$ 2,000
Accounts receivable	$3,000
Notes payable	$37,000
Revenues	$ 983,000
Supply expenses	$ 255,000
Depreciation expenses	$ 35,000
Labor expense	$300,000
Interest Expenses	$11,000
Stockholders’ Equity	$61,500
Cash & cash equivalents	$97,000
Long-term debt	$3,500

                              

Q3. Why secondary markets are so important to raise capital? (1 mark)

Answer 1

Answer to Question 1:

Part a:

Net Income = Taxable Income * (1 - Tax Rate)
$3,700,214 = Taxable Income * (1 - 0.35)
$3,700,214 = Taxable Income * 0.65
Taxable Income = $5,692,637

EBIT = EBITDA - Depreciation and Amortization Expense
EBIT = $10,125,300 - $2,543,790
EBIT = $7,581,510

Taxable Income = EBIT - Interest Expense
$5,692,637 = $7,581,510 - Interest Expense
Interest Expense = $1,888,873

Part b:

Common-Size Income Statement Sales $ 12,000,000 Cost of goods sold 1,874,700 EBITDA 10,125,300 Depreciation and amortization expense 2,543,790 EBIT 7,581,510 Interest expense 1,888,873 Taxable income 5,692,637 Taxes 1,992,423 Net income $ 3,700,214 100.00% 15.62% 84.38% 21.20% 63.18% 15.74% 47 44% 16.60% 30.84%