c. Assume that First Capital Bank has offered the loan at a rate of 4.4% with a review, and the cost of the audit has increased to $134,000 due to new auditing standards requirements. Indicate whether Carlisle should keep its existing loan, accept the offer from First Capital Bank, or accept the offer from Money Tree Bank. d. Discuss why Carlisle may desire to have an audit, ignoring the potential reduction in interest costs. e. Explain how a strategic understanding of the client's business may increase the value of the audit service. Carlisle Corporation has an existing loan in the amount of $8 million with an annual interest rate of 5.4%. The company provides an internal company-prepared financial statement to the bank under the loan agreement. Two competing banks have offered to replace Carlisle Corporation's existing loan agreement with a new one. First Capital Bank has offered to loan Carlisle $8 million at a rate of 4.4% but requires Carlisle to provide financial statements that have been reviewed by a CPA firm. Money Tree Bank has offered to loan Carlisle $8 million at a rate of 3.4% but requires Carlisle to provide financial statements that have been audited by a CPA firm. Carlisle Corporation's controller approached a CPA firm and was given an estimated cost of $32,000 to perform a review and $54,000 to perform an audit. Read the requirements. (Enter amounts in dollars, not millions, throughout.) $ 32,000 $ 352,000 $ First Capital Bank (CPA Review service) Money Tree Bank (CPA Audit service) 384,000 326,000 $ 54,000 $ 272,000 $ Indicate whether Carlisle should keep its existing loan, accept the offer from First Capital Bank, or accept the offer from Money Tree Bank. Based on the analysis in the preceding step, Carlisle should accept the offer from Money Tree Bank. Requirement c. Assume that First Capital Bank has offered the loan at a rate of 4.4% with a review, and the cost of the audit has increased to $134,000 due to new auditing standards requirements. Indicate whether Carlisle should keep its existing loan, accept the offer from First Capital Bank, or accept the offer from Money Tree Bank. Begin by calculating the annual costs under each loan agreement. (Complete all input fields. Enter a "0" for any zero balances.) Cost of CPA Annual Loan Lender Services Annual Interest Cost Existing loan (No CPA service) First Capital Bank (CPA Review service) Money Tree Bank (CPA Audit service)
