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Kalamazoo Company has a $5 million revolver with its bank to borrow at an annual interest...

Kalamazoo Company has a $5 million revolver with its bank to borrow at an annual interest rate of 4 percentage point above the prime rate (currently 7 percent). The agreement requires the company to maintain a 10% average compensating balance on any funds borrowed under the agreements, as well as to pay a 0.75 percent commitment fee on the unused portion of the credit line. The company’s average borrowing under the agreement during the year is expected to be $3 million. The company maintains an average $150,000 in its account at the bank, which can be used to meet the compensating balance requirement. Calculate the AFC of the revolver loan.

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