Solving for depreciation and amortization… Help!?
Terri asked:
The Centennial Chemical Corporation announced that for the period ending March 31, 2008, it had earned income after taxes worth $5,330,275 on revenues of $13,144,680. 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 tax rate is 34 percent?
The Centennial Chemical Corporation announced that for the period ending March 31, 2008, it had earned income after taxes worth $5,330,275 on revenues of $13,144,680. 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 tax rate is 34 percent?
Unless I’m not understanding the given information, this doesn’t appear to work.
Costs excluding depreciation and amortization = 13,144,680 * .61 = 8,018,254.80.
This means that even without depreciation and amortization and interest expense, income before taxes is 13,144,680 – 8,018,254.80 = 5,126,425.20.
But if you compute net income before taxes by dividing income after taxes by one minus the tax rate, you get: 5,330,275/(1 – .34) = 8,076,174.24
This means that you’d need to have negative depreciation and amortization to make this work.