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Question
Soenen Inc. had the following data for last year (in millions). The new CFO believes that the company could improve its working capital management sufficiently to bring its net working capital and cash conversion cycle up to the benchmark companies' level without affecting either sales or the costs of goods sold. Soenen finances its net working capital with a bank loan at an 8% annual interest rate, and it uses a 365-day year. If these changes had been made, by how much would the firm's pre-tax income have increased?Original
Data Related CCC Benchmarks' CCC
Sales $99,000
Cost of goods sold $80,000
Inventory (ICP) $20,000 91.25 38.00
Receivables (DSO) $16,000 58.99 20.00
Payables (PDP) $5,000 22.81 30.00
127.43 28.00
a. $1,467
b. $1,906
c. $1,810
d. $2,058
e. $1,849
Answer
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