Playing the float. Clay Travel, Inc. routinely funds its checking account to cover all checks when written. A thorough analysis of its checking account discloses that the firm could maintain an average account balance that is 25% below the current level and adequately cover all checks presented. The average account balance is currently $900,000. If the firm can earn 10% on short-terms investments, what, if any, annual savings would result form maintaining the lower average account balance?

Question

Playing the float.  Clay Travel, Inc. routinely funds its checking account to cover all checks when written.  A thorough analysis of its checking account discloses that the firm could maintain an average account balance that is 25% below the current level and adequately cover all checks presented.  The average account balance is currently $900,000.  If the firm can earn 10% on short-terms investments, what, if any, annual savings would result form maintaining the lower average account balance?