Question
In: Finance
New Mexico Lumber recently reported that its earnings per share were $3.00. The company has 400,000...
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)?
a. $ 980,000
b. $1,220,000
c. $2,000,000
d. $2,500,000
e. $3,500,000
Solutions
Expert Solution
Answer is Option d. $2,500,000
Earnings per Share (EPS) = $3.00
Number of shares outstanding = 400,000
Hence, Net Income = EPS * Number of Shares outstanding = 3 * 400,000 = 1,200,000
Now, Net income = Earnings before tax * (1 - tax rate)
Tax rate = 40%
=> Earnings before tax (EBT) = 1,200,000/(1 - 40%) = $2,000,000
EBIT = EBT + Interest Expense
EBIT = $2,000,000 + $500,000 = $2,500,000. Answer is Option d
jeff jeffy answered 2 years agoRelated Solutions
New Mexico Lumber recently reported that its earnings per share were $3.00. The company has 400,000...
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
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