Hurkin Manufacturing Company pays accounts payable on


the tenth day after purchase. The average collection period is 30 days, and the

average age of inventory is 40 days. The firm currently has annual sales of about

$18 million and purchases of $14 million. The firm is considering a plan that

would stretch its accounts payable by 20 days. If the firm pays 12% per year for its

resource investment, what annual savings can it realize by this plan? Assume a

360-day year.