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Fontana Painting Had the Following Data for the Most Recent

question 93

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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?
Original  Data  Sales $100,000 Cost of goods sold $80,000 inventory (ICP)  $20,000 Receivables (DSO)  $16,000 Payables (PDP)  $5,000Benchmark  Related CCC  CCC 91.2538.0058.4020.0022.8130.00126.8428.00\begin{array}{l}\begin{array} { l } &\text {Original }\\&\text { Data }\\\text { Sales } & \$ 100,000 \\\text { Cost of goods sold } & \$ 80,000 \\\text { inventory (ICP) } & \$ 20,000 \\\text { Receivables (DSO) } & \$ 16,000 \\\text { Payables (PDP) } & \$ 5,000\end{array}\begin{array} { l } \text {Benchmark }\\\text { Related CCC } &\text { CCC }\\\\ \\ \\91.25 & 38.00 \\58.40 & 20.00 \\22.81&30.00\\126.84 &28.00\end{array}\end{array}

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