Fontana Painting Had the Following Data for the Most Recent

question 60

Multiple Choice

Fontana Painting had the following data for the most recent year (in millions) .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.Fontana 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? $\begin{array}{lc} &\text { Original}&\text { Benchmark}\\ & \underline{\text { Data} }&\underline{\text { Related } \mathrm{CCC} }& \underline{\mathrm{CCC}} \\\text { Sales } & \$ 100,000 \\\text { Cost of goods sold } & \$ 80,000 \\\text { Inventory (ICP) } & \$ 20,000 &91.25&38.00\\\text { Receivables (DSO) } & \$ 16,000&58.40&20.00 \\\text { Payables (PDP) } & \$ 5,000&22.81&30.00\\&&\underline{126.84}&\underline{28.00}\end{array}$

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

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Definitions:

Alcoholism

A chronic disease characterized by uncontrolled drinking and a preoccupation with alcohol, leading to physical and psychological dependence.

Tolerance

The body's reduced response to a substance (like a drug or alcohol) due to repeated exposure, requiring larger amounts to achieve the same effect.

Hemorrhagic Stroke

A type of stroke caused by a ruptured blood vessel leading to bleeding inside or around the brain.

Middle Age

A period in human life, typically between the ages of about 45 and 65, characterized by noticeable changes in physical health, personal development, and social role.