I am trying to complete this review for my exam and I am unsure how to answer parts A-C? Can someone explain how to go about it? I have tried asking my instructor for help in the past and he was no help at all.

Susch Corporation has an existing loan in the amount of $6 million with an annual interest rate 1 0.0%. The company provides a set of internal company prepared financial statements to the bank under the loan agreement. Two competing banks have offered to replace Busch Corporation's existing loan agreement with a new one. Union National Bank has offered to loan Busch $6 million at a rate of 5.0% but requires Busch to provide financial statement that have been reviewed by a CPA firm. First City Bank has offered to loan Busch S6 million at a rate of 4.0% but requires Busch to provide financial statements that have been audited by a CPA firm. Busch Corporation's controller approached a CPA and was given an estimated cost of $35.000 to perform a review and $60,000 to perform an audit. a) 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 for the loan that requires an audit report is lower than the interest rate for the other two loans. b) Assuming that Busch seeks to minimize financing costs, which option should the company pursue? Why? Be sure to provide any supporting calculations. c) Assume that United Bank has offered to loan at a rate of 4.5% with a review, and the cost of the audit has increased to $80,000 due to new auditing standards requirements. Which option should Busch now choose? Why? Be sure to provide any supporting calculations. d) Discuss why Busch may desire to have an audit, ignoring the potential reduction in interest costs. e) Regardless of your answers above, assume that Busch took the loan option that required an audit. If it was later publicly disclosed that the audit firm had some rather serious problems with the audits of other clients (but was not specifically mentioned Busch), how could this announcement potentially affect the rates that Busch received from the bank? Why? Regardless of your answers above, suppose that Busch's existing bank expressed interest in having an executive from the bank assume a position on Busch's board of directors. What would the expected effect be on the interest rate associated with the loan? Be sure to explain your answer. Page 2 of 11