ABC's average balance sheet was as follows during the year ended 2019

Cash $ 0

Accounts receivable $60,000,000

Inventory $20,000,000

Long term assets $20,000,000

Total assets $100,000,000

A/P and accruals ($20,000,000)

Revolving credit line payable ($50,000,000)

Equity ($30,000,000)

Liabilities and equity ($100,000,000)

Revenue for the year was $250 million and cost of sales were $200 million

The revolving credit line is non-cancellable for any reason through 12/31/20 and allows borrowings of up to $60 million with all amounts borrowed bearing interest at a rate of 10%.

Assuming Cost, Inc. could have reduced their average days sales outstanding during 2019 to 36 days and taken other logical and appropriate management actions, the impact on pretax income would have been closest to:

1. No impact on income

2. $4.0 million improvement in income

3. $3.5 million improvement in income

4. $40 million improvement in income

5. None of the above are realistic changes in income for this fact pattern