New Mexico Lumber recently reported that its earnings per sh

New Mexico Lumber recently reported that its earnings per share were $4.00. The company has 500,000 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)? Round it to a whole dollar, and do not include the dollar sign.

Solution

net income = 4 * 500,000 = 2,000,000

Earnings before tax = 2,000,000/(1 - 0.40)  

EBIT = 2,000,000/(1 - 0.40) + 500,000 = 3,833,333