Pascarella Inc.is revising its payables policy.It has annual sales of $50,735,000,an average inventory level of $15,012,000,and average accounts receivable of $10,008,000.The firm's cost of goods sold is 85% of sales.The company makes all purchases on credit and has always paid on the 30th day.However,it now plans to take full advantage of trade credit and to pay its suppliers on the 40th day.The CFO also believes that sales can be maintained at the existing level but inventory can be lowered by $1,946,000 and accounts receivable by $1,946,000.What will be the net change in the cash conversion cycle,assuming a 365-day year?

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$\begin{array}{lrr} \text { } & \text { Original } & {\text { New }} \ \text { Annual sales} & \$ 50,735,000 & \$ 50,735,000 \ \text { Days in year } & 365 & 365 \ \text {Sales per day } & \$ 139,000 & \$ 139,000 \ \text { COGS/Sales } & 85 \% & 85 \% \ \text {COGS per day } & \$ 118,150 & \$ 118,150 \ \text { Inventory } & \$ 15,012,000 & \$ 13,062,000 \ \text { Accounts receivable} & \$ 10,008,000 & \$ 8,062,000 \ \$ \text { Pay. deferral period} & 30 & 40 \ \$ \text { Reduction in Inv. } & & \$ 1,946,000 \ \$ \text { Reduction in Rec. } & & \$ 1,946,000 \ \end{array}$ Cash conversion cycle = Inv.conversion period + Avg.collection period -Pay.deferral period CCC_Orig = 127.06 + 72.00 - 30.00 = 169.06 CCC_New = 110.59 + 58.00 -10 40.00 = 128.59 CCC_New-CCC_Orig = 128.59 F1F1F1S1?F1F1F10 169.06 = -40.47 days