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AT&D has a revolving credit agreement with Bank Of Sweet South (BOSS) under which AT&D can...

AT&D has a revolving credit agreement with Bank Of Sweet South (BOSS) under which AT&D can borrow up to $10 million at an annual interest rate of 1.5% point above the prime rate. Prime rate is currently at 9.5%. The AT&D is required to maintain a 18% compensating balance on any funds borrowed under the agreement and to pay a 0.5% commitment fee on the unused portion of the credit line. Both the commitment fee and the interest expense are due at the end of the year. AT&D has $250,000 in its account at BOSS that can be used to meet the compensating balance requirement. What is AT&D’s annual financing cost of borrowing $6 million?

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