Bengal Company Ltd. has an existing loan in the amount of BDT370 million with an annual interest rate of 8.5%. The company provides an internal company-prepared financial statement to the bank under the loan agreement. Two competing banks have offered to replace Bengal Company's existing loan agreement with a new one. United National Bank has offered to loan Bengal Company BDT370 million at a rate of 7.5% but requires Bengal Company to provide financial statements that have been reviewed by a CA firm. First City Bank has offered to loan Bengal Company BDT370 million at a rate of 6.5% but requires Bengal Company to provide financial statements that have been audited by a CA firm. Bengal Company's CFO approached a CA firm and was given an estimated cost of BDT1.50 million to perform a review and BDT3.20 million to perform an audit. Q2. cont'd Required: (i) Explain why the interest rate for the loan that requires a review report is lower than that for the loan that did not require a review. Explain why the interest rate for the loan that requires an audit report is lower than the interest rate for the other two loans. (ii) Calculate Bengal Company's annual costs under each loan agreement, including interest and costs for the CA firm's services. Indicate whether Bengal Company should keep its existing loan, accept the offer from United National Bank, or accept the offer from First City Bank. (iii) Assume that United National Bank has offered the loan at a rate of 7.0% with a review, and the cost of the audit has increased to BDT4.0 due to new auditing standards requirements. Indicate whether Bengal Company should keep its existing loan, accept the offer from United National Bank, or accept the offer from First City Bank. (iv) Discuss why Bengal Company may desire to have an audit, ignoring the potential reduction in interest costs. (v) Explain how a strategic understanding of the client's business may increase the value of the audit service.