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Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

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Section
BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

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

Summary Introduction

To determine: The interest expense of Company P.

Income Statement: A part of financial statements that lists the income and expenses of business for an accounting year is called income statement. It is prepared at the end of accounting period to know the profitability of the business.

Explanation

Solution:

Partial income statement of Company P:

P Company
Partial Income Statement
Particulars

Amount

($)

Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) 7,500,000
Interest Expense (2,000,000)
Earnings Before Taxes, Depreciation and Amortization (EBTDA) 5,500,000
Depreciation and Amortization Expense (2,500,000)
Taxable Income 3,000,000
Income Tax (40%) (1,200,000)
Net Income 1,800,000

Working note:

Taxable income:

Taxable Income=Net Income(1

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