Question

Fraser Corporation has announced that its net income for the year ended June 30, 2013, was $1,353,412. The company had EBITDA of $4,957,000, and its depreciation and amortization expense was equal to $1,156,000. The company's tax rate is 34 percent. What was its interest expense? (Round answer to 2 decimal places, e.g. 15.25.) Interest expense.

Answer 1

Here we require to calculate the Interest cost and we have detail of EBITDA, Depreciation and amortization expense, tax rate and net income.

First we calculate the tax amount as the net income given, If company earn $100 then require to pay tax $34 and net income $66 so here net income was $1,353,412 so tax amount = $1,353,412

Now we find out the EBT

Means net income is 100% - 34% = 66% of EBT (Earning before tax)

Here net income was $1,353,412 is 66%

So,

Net Income = EBT x 66%

$1,353,412 = EBT x 66%

EBT = $2,050,624.24

Tax Expence = EBT - Net Income = $2,050,624.24 - $1,353,412 = $697,212.24

EBT = EBITDA - D&A Expense - Interest Expense

$2,050,624.24 = $4,957,000 - $1,156,000 - Interest Expense

Interest Expense = $4,957,000 - $1,156,000 - $2,050,624.24

Interest Expense = $1,750,375.76

So Interest Expense = $1,750,375.76

Cross verifiaction calculation

Particular	Amount
EBITDA	$    4,957,000.0
Less : Depreciation	$    1,156,000.0
Less : Interest Expense	$ 1,750,375.76
EBT	$ 2,050,624.24
Less : Tax @ 34%	$      697,212.24
Net Income	$ 1,353,412.00