Question

The Ivanhoe Chemical Corporation announced that, for the period ending March 31, 2017, it had earned income after taxes of $2,768,313.00 on revenues of $13,148,000. The company's costs (excluding depreciation and amortization) amounted to 61 percent of sales, and it had interest expenses of $392,168. What is the firm's depreciation and amortization expense if its average tax rate is 34 percent? (Round answer to 2 decimal places e.g. 15.25.)

Answer 1

Depreciation =$541,138.36

Step-by-step explanation:

Income after tax = Profit before tax - income tax

Profit before tax = Profit before interest and tax (PBIT) - interest expense

Profit before interest and tax (PBIT) = Revenue - cost of sales - Depreciation and amortization

Cost of sales = 61% of sales = 61%× $13,148,000 =8,020,280

before before tax = Profit after tax /(1-T)

Profit before tax = 2,768,313.00/(1-0.34) = 4,194,413.64

Profit before interest and tax = Profit before tax + interest

= 4,194,413.64 + 392,168 = 4,586,581.64

Profit before interest and tax (PBIT) = Revenue - cost of sales - Depreciation and amortization

We can substitute the figures into the equation above to work out the depreciation and amortization

4,586,581.64 = 13,148,000 - 8,020,280 - depreciation

Depreciation= 5127720 - 4,586,581.64 =541,138.36

Depreciation =$541,138.36