Answer to Question #202158 in Accounting for Xyz

Question

Operating costs (excl. depreciations & amortization): $4.5m

Depreciation and amortization: $1.5m

Interest: $0.7m

Net Income: $2.8m

Tax Rate: 35%  

1. Calculate EBITDA. 

2. What level of sales would generate a net income of $4.2m for the following year, knowing that operating costs (excl. depreciation and amortization) will increase by 7.5%, and given a 35% tax rate. 

Answer 1

Question 1

EBITDA = Net income + Interest + Tax expense + Depreciation +Amortization

Tax expense = tax rate * taxable income

Net income + tax expense = taxable income; if tax rate is 35% of taxable income, net income is 65% of taxable income.

65% = $2.8m

35% = $1,507,692.31 (Tax expense)

EBITDA = $2.8m + $0.7m + $1,507,692.31 + $1.5m

EBITDA = $6,507,692.31

Question 2

For the following year:

Net income = $4.2m

Operating costs (excl D & A) = 107.5% *$4.5m = $4,837,500

Tax expense (35%) + Net income (65%) = Taxable income (100%)

If net income 65% = $4.2m; then taxable income = $6,461,538.46

Sales revenue =taxable income + interest expense + operating costs [incl. Depreciation and Amortization]

Sales revenue = $6,461,538.46 + $0.7m + ($4,837,500 + $1.5m)

Level of sales should be $13,499,038.46