Question (4)
Lucarelli, Inc., an Italian sportswear manufacturer, has been given net 60-day terms by all its suppliers. Last year, the company purchased $4,200,000 of inventory and paid its trade at an average of 60 days. A major supplier that provides 30% of Lucarelli's material has changed its terms to net 45 days. Assuming purchases remain the same this year and Lucarelli agrees to pay on these new terms, what effect will this change have on Lucarelli's financing needs? (Use purchases in place of cost of goods sold in your calculation.)
Financing needs will decrease by approximately $52,000.
Financing needs will decrease by approximately $173,000
Financing needs will increase by approximately $52,000.