Soenen Inc

question 103

Multiple Choice

Soenen Inc. had the following data for 2011 (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?

• A) 1,901
• B) 2,092
• C) 2,301
• D) 2,531
• E) 2,784

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Definitions:

Availability Heuristic

An intellectual quick-step that employs readily recalled instances when contemplating a certain topic, notion, strategy, or judgment.

Endowment Effect

The phenomenon in which individuals value an owned object higher than its market value simply because they own it.

Prospect Theory

Prospect Theory is a behavioral economic theory that describes how people choose between probabilistic alternatives involving risk, where the probabilities of outcomes are known.

Prospect Theory

A behavioral economic theory that describes how people choose between probabilistic alternatives that involve risk, where the probabilities of outcomes are unknown.