Question

Talbot Enterprises recently reported an EBITDA of $6.5 million and net income of $1.95 million. It had $2.08 million of interest expense, and its corporate tax rate was 40%. What was its charge for depreciation and amortization? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000.

Answer 1

Step-1, Net Income Before Tax

Net Income Before Tax = Net Income After Tax / (1 – Tax Rate)

= $1,950,000 / (1 – 0.40)

= $1,950,000 / 0.60

= $3,250,000

Step-2, Earnings Before Interest and Tax

Earnings Before Interest and Tax = Net Income Before Tax + Interest Expenses

= $3,250,000 + $2,080,000

= $5,330,000

Step-3, Depreciation and Amortization charges

Earnings Before Interest and Tax = EBITDA - Depreciation and Amortization charges

$5,330,000 = $6,500,000 - Depreciation and Amortization charges

Depreciation and Amortization charges = $6,500,000 - $5,330,000

Depreciation and Amortization charges = $1,170,000

“Hence, the Depreciation and Amortization charges will be $1,170,000”