Stumped by 1st Round Question

If NI is the same, company B would have a higher EBITDA

It's a poorly worded question (either by you here or the interviewer during the interview). The only way you're wrong is if they're saying the two companies are "identical" in terms of their net income after tax. Then, of course, company B has higher EBITDA.

What's identical? Net income or up until EBT? Big difference.

As GreenspanAndHam mentioned, If the tax rate is higher then wouldn't it be automatically assumed that Company B has a higher EBITDA?? Correct me if I am wrong

WTF. You weren't wrong. If the companies are identical, the EBITDA is the same. A company =/= an income statement, so it stands to reason that these companies sell the same products for the same prices and bear the same costs making and marketing them. The different tax rates, obviously, affect net income, but not EBITDA.

This question is nonsensical as worded in the op. How can two companies be exactly the same save for their tax rate? For them to end up with the same net income, one of them must have more deductions from pre-tax income, no?

Just shows the shitshow that is interviewing. I had an interviewer once ask me about the most efficient way to cross a river or bridge with a certain amount of items but he got the wrong number of items so the combination was simple and he insisted I was wrong. he didn't realize his mistake in wording the question even after I asked clarifying questions.

If only difference is tax rate, then A and B have same EBITDA and A has higher NOPAT. You're not wrong. The person interviewing you sucks.

I sifted through the response, and didn't see a response. Though it may have already been addressed.

You have to remember that EBITDA is EBIT, or Operating Income, plus Depreciation & Amortization. There's a depreciation tax shield, which is added back to EBIT, given that it is a non-cash expense. So if you charge a higher tax rate, this implies a larger depreciation tax shield. Remember that Depreciation appears on both the IS, under OpEx, and CFS, under cash flows from operations.

Hope that makes sense. Let me know if you have any other questions.

I think we can agree that this was a badly-worded question. If this were on a final exam at any university, students would complain, the professor would be overruled by his colleagues, and the question would be thrown out for all the reasons above.

Assuming you're not misrepresenting the question, this is a prime example of a person asking a brain-teaser they don't understand themselves. I see this all the time in consultancies where everyone imagines they're clever, so they guide case interviews less well than they might imagine. There is a lot of observer bias in interviews. In this case, the interviewer did a poor job articulating what they meant, you were subsequently confused, got the question 'wrong' and thereafter, the interviewer probably assumed you didn't know what you were talking about. Maybe it won't matter, and you'll get the job anyway. Alternatively, you can take the chance now to follow up with the interviewer to explain the answers provided to you above. Just be careful in your wording to make sure the interviewer doesn't feel like an idiot.

Maybe an unpopular take, but it seems reasonable to me to assume that everything was identical except EBITDA. I say this because they said identical in every way, then asked the difference between one metric. Clearly that is the "plug" here so to speak, and you can equalize the tax difference using the variable they indicated is different between the two companies.