Question

Parrino corporation has announced that its net income for the year ended june 30, 2008, is $1,824,214. the company had an ebitda of $5,174,366, and its depreciation and amortization expense was equal to $1,241,790. the company's average tax rate is 34 percent. what is the amount of interest expense for the firm?

Answer 1

If all of the items in EBITDA (earnings before interest, tax, depreciation and amortization) are given except one in this case it is tax, you can crack for the missing item.

First you need to find the earnings before tax.

The Net income is = $1,824,214
The Tax rate is 34%, so the company's EBT amount is calculated as:

$1,824,214/ 0.66 = $2763, 960.61

Add depreciation and amortization back to that figure and get:

$2763, 960.61 + $1,241,790 = $4,005,750.61.

The difference between that, and the EBITDA amount will be the interest expense for the year.

$5,174,366 - $4,005,750.61= $1,168,615.39

$1,168,615.39 is your interest expense for the year

Answer 2

If the company's net income was $1,824,214, we divide this by 66% (1-tax rate) to get pretax income. if we do that we get $2,763,961. Now if we add depreciation and amortization expense to this we get $4,005,751. The difference between this amount and EBITDA of $5,174,366 is $1,168,615 so this amount must have been interest expense.