Question

New Mexico Lumber recently reported that its earnings per share were $3.00. The company has 400,000 shares of stock outstanding. The company's interest expense was $500,000. The corporate tax rate is 40 percent. What was the company's operating income (EBIT)? Question 30 options: $ 980,000 $1,220,000 $2,000,000 $2,500,000 $3,500,000

Answer 1

EBIT(balance)(2,000,000+500,000)	2,500,000
Less:interest expense	500,000
EBT(100%)(1,200,000/0.6)	2,000,000
Less:tax@40%(2,000,000*40%)	800,000
Net income(60%)	1,200,000

EPS=Net income/Shares of stock outstanding

Net income=(3*400,000)=1,200,000