Napper Corporation has an existing loan in the amount of $5 million with an annual interest rate of 6.4% . The company provides an internal company-prepared financial statement to the bank under the loan agreement. Two competing banks have offered to replace Napper Corporation's existing loan agreement with a new one. United National Bank has offered to loan Napper $5 million at a rate of 5.2% but requires Napper to provide financial statements that have been reviewed by a CPA firm. Money Tree Bank has offered to loan Napper $5 million at a rate 4.2% of but requires Napper to provide financial statements that have been audited by a CPA firm. Napper Corporation's controller approached a CPA firm and was given an estimated cost of $27,000 to perform a review and $35,000 to perform an audit.

Calculate Napper Corporation's annual costs under each loan agreement, including interest and costs for the CPA firm's services. Indicate whether Napper should keep its existing loan, accept the offer from United National 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.)

Lender	Cost of CPA Services	Annual Interest	Annual Loan Cost
Existing loan (No CPA service)
United National Bank (CPA Review service)
Money Tree Bank (CPA Audit service)

C	Assume that United National Bank has offered the loan at a rate of 5.2% with a review, and the cost of the audit has increased to $105,000 due to new auditing standards requirements. Indicate whether Napper should keep its existing loan, accept the offer from United National Bank, or accept the offer from Money Tree Bank.
d.	Discuss why Napper 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.