Question

3) In 2019, Clarion Inc. generated NOPAT of $5,000,000 from operations. Their tax rate was 21%. In addition, they also had the following other revenues and expenses: Depreciation - 20% of EBITDA Interest expense on their own debt = $400,000; Interest income from T-Bonds = $150,000; Dividend income from Ring Corp. stock = $200,000; Net capital gains from sale of stock = - $100,200 a) Compute Clarion's EBIT from operations in 2019. b) Compute Clarion's EBITDA from operations in 2019. c) Compute Clarion's taxable income in 2019, including all sources of income. d) Compute Clarion's tax paid in 2019.

Answer 1

EBIT = Earnings Before Interest and Tax = Operating profit NOPAT = Net Operating Profit After Tax = $5,00,000 Tax Rate = 21% NOPAT = EBIT X (1-Tax rate) Therefore $5,00,000 = EBIT X (1-21%) EBIT = 632,911 EBITDA = Earnings Before Interest and Tax and Depreciation EBITDA = EBIT +Depreciation Depreciation = 20% x EBITDA Let EBITDA be = X So Depreciation = 0.2% Therefor X = 632,911 +0.2X 0.8X = 6,32,911 X=EBITDA = 791,139

Taxable Income = Earning Before Tax = EBT EBT = EBIT - Interest expense + Interest income Interest expense = $400,000 Interest income = $150,000 EBT = 632,911 - 400,000 +150,000 = $382,911 Tax paid = EBT X Tax rate = 382,911 x 21% = $80,411