New Mexico Lumber recently reported that its earnings per sh

New Mexico Lumber recently reported that its earnings per share were $5.00. The company has 400,000 shares of stock outstanding. The company\'s interest expense was $ 600,000. The corporate tax rate is 40 percent. What was the company\'s operating income (EBIT)? Round it to a whole dollar, and do not include the dollar sign.

Solution

Profit after tax = 400,000 * 5 = 2,000,000

Profit before tax = 2,000,000/(1 - 0.40) = 3,333,333.33

EBIT = 3,333,333.33 + 600,000 = 3,933,333