Paul Jenkins is valuing Rose Inc, a private manufacturing company. He gathers th
ID: 2620900 • Letter: P
Question
Paul Jenkins is valuing Rose Inc, a private manufacturing company. He gathers the following information regarding the company: Revenues Less: Cost of goods sold Gross profit Less: Selling, general, and admin. expenses EBITDA Less: Depreciation and amortization Earnings before interest and taxes Less. Pro forma taxes @ 40% Operating income after taxes Reported (S) 7,565,500 4,387,990 3,177,510 2,450,600 726,910 430,000 296,910 118,764 178,146 The following information is also available Daniela Castano is the principal shareholder and CEO of Rose Inc. Her compensation for the year was $1.5 million, which was included in the company's selling, general, and administrative expenses (SG&A;). Paul believes that a market-based compensation expense of $2 million is suitable for a CEO for this company Daniela's brother, Juan Diaz, provided consultancy services to the company for $10,000. These expenses were included in the company's SG&A.; However, Paul believes that a suitable market-based compensation expense for such consultancy is $15,000 The company incurred expenses amounting to $300,000 on a farmhouse, which Paul does not consider necessary for the core operations of the company. $200,000 worth of expenses was included in SG&A;, while $100,000 was included in depreciation expense Daniela recently took a personal holiday for which she charged the company $4,000. These are included in the company's SG&A;Explanation / Answer
Option b 57,546 is correct option
SGA Expenses at beginning 2450600 Revenues 7565500 Add Extra Compensation expense 500000 Less : Cost of Goods Sold 4,387,990 Add Extra consulting fees 5000 Gross Profit 3,177,510 Less Non operating expenses 200000 Less SGA 2751600 Less Holiday expenses 4000 EBIDTA 425,910 SGA at year end 2751600 Less depreciationa nd amortisation 330000 EBIT 95,910 Depreciation at beginning 430000 Taxes 38364 Less Non operating depreciation 100000 Operating Income 57,546 Depreciation at year end 330000