On 1/1/19, Loyola, Inc. put in a new automated water sensing systems at all of its...
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On 1/1/19, Loyola, Inc. put in a new automated water sensing systems at all of its owned Hospitals to eliminate all handheld watering needed
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Total amount paid for the systems was $50 million and the systems are being depreciated over a 10 year life
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Loyola borrowed the $50 million cost of the facility at an interest rate of 10%. The debt principal was outstanding for all of 2019
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The system resulted in labor cost savings of $5 million during 2019
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The system resulted in water cost savings of $1 million during 2019
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No other impacts other than impacts from the above
What was the impact on EBITDA of Loyola during 2017?
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No change
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$1.0 million increase
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$5.0 million decrease
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$6.0 million increase
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None of the above
Homework Answers
$6.0 million increase is correct answer.
Explanation :-
Impact os EBITDA = Saving in labor cost + saving in water cost
= $5 million + $1 million = $6 million
Note:- Depreciation expense of $5 million ($50 million/10) and Interest expense of $5 million ($50 million x 10%) doesn't affect EBITDA as they impact PBT or PAT
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