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 charge for depreciation and amortization?

Pearson brothers recently reported an ebitda of $7.5 million and net

Depreciation and amortization are important components of the income statement, in that they both represent non-cash expenses. Depreciation is an expense associated with the wear and tear on fixed assets such as buildings, equipment, furniture, and automobiles. Amortization is an expense associated with intangible assets acquired through business activities (such as trademarks or goodwill).

In order to calculate Pearson Brothers’ charge for depreciation and amortization we must first calculate their EBIT (earnings before interest & taxes). In this case, EBIT equals EBITDA minus depreciation & amortization:

EBIT = $7.5 Million – $X

We then use the following equation to determine X:

Taxable Income + Interest Expense – Depreciation & Amortization = Net Income
or
$1.8 Million + $2.0 Million – X = $1.8 Million

This results in a value for X of $4.6 million which represents Pearson Brothers’ charge for depreciation and amortization during the given period therefore it can be concluded that Pearson Brothers had a total charge for depreciation & amortization of 4.6 million dollars during this period