Soenen Inc.had the following data for 2008 The new CFO believes that the company could improve its working capital management sufficiently to bring its NWC and CCC 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?

Question

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The correct answer is A.The firm's pre-tax income would have increased by $1,901 if the changes had been made. This is because the firm would have been able to reduce its net working capital by $10,000, which would have resulted in a reduction in interest expense of $800. Additionally, the firm would have been able to increase its CCC by $5,000, which would have resulted in an increase in pre-tax income of $1,101.