ExpertHard1 markMultiple Choice
CPA · Question 04 · Area I: Business Analysis
TechSolutions Inc. reports Net Income of $500,000. The following items are included in the calculation of Net Income:<br/>- Depreciation Expense: $120,000<br/>- Amortization of Intangibles: $50,000<br/>- Interest Expense: $80,000<br/>- Income Tax Expense: $150,000<br/>- Stock-Based Compensation Expense: $60,000<br/>- Restructuring Costs: $40,000<br/>- Unrealized Gain on Trading Securities: $10,000<br/><br/>Calculate the company's Adjusted EBITDA, assuming management defines it as EBITDA adjusted for stock-based compensation, restructuring costs, and unrealized gains/losses.
TechSolutions Inc. reports Net Income of $500,000. The following items are included in the calculation of Net Income:<br/>- Depreciation Expense: $120,000<br/>- Amortization of Intangibles: $50,000<br/>- Interest Expense: $80,000<br/>- Income Tax Expense: $150,000<br/>- Stock-Based Compensation Expense: $60,000<br/>- Restructuring Costs: $40,000<br/>- Unrealized Gain on Trading Securities: $10,000<br/><br/>Calculate the company's Adjusted EBITDA, assuming management defines it as EBITDA adjusted for stock-based compensation, restructuring costs, and unrealized gains/losses.
Answer options:
A.
$900,000
B.
$910,000
C.
$990,000
D.
$990,000
How to approach this question
Step 1: Calculate EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization. Step 2: Apply specific adjustments (Add back expenses, subtract gains).
Full Answer
D.$990,000✓ Correct
EBITDA = $500,000 (NI) + $80,000 (I) + $150,000 (T) + $120,000 (D) + $50,000 (A) = $900,000.<br/>Adjusted EBITDA = $900,000 + $60,000 (Stock Comp) + $40,000 (Restructuring) - $10,000 (Unrealized Gain) = $990,000.
Common mistakes
Adding the gain instead of subtracting it; forgetting to add back taxes or interest.
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