The company provides an internalcompany-preparedfinancial statement to the bank under the loan agreement. Two competing banks have offered to replace

Busch

Corporation'sexisting loan agreement with a new one.

BigTop

Bank has offered to loan

Busch

$6

million at a rate of

4.2%

but requires

Busch

to provide financial statements that have been reviewed by a CPA firm.

GreenBack

Bank has offered to loan

Busch

$6

million at a rate of

3.3%

but requires

Busch

to provide financial statements that have been audited by a CPA firm.

Busch

Corporation'scontroller approached a CPA firm and was given an estimated cost of

$26,000

to perform a review and

$41,000

to perform an audit.

Requirement b.Calculate

Busch

Corporation'sannual costs under each loanagreement,including interest and costs for the CPAfirm'sservices. Indicate whether

Busch

should keep its existingloan,accept the offer from

BigTop

Bank,or accept the offer from

GreenBack

Bank.

Begin by calculating the annual costs under each loan agreement.