In-Class Exercise Audit & Bank Loan Busch Corporation has an existing loan in the amount of $4.5 million with an annual interest rate of 5.5%. The company provides an internal company-prepared financial statement to the bank under the loan agreement. Two competing banks have offered to replace Busch Corporation's existing loan agreement with a new one. BMO has offered to loan Busch $4.5 million at a rate of 4.5% but requires Busch to provide financial statements that have been reviewed by a public accounting firm. Desjardins has offered to loan Busch $4.5 million at a rate of 3.5% but requires Busch to provide financial statements that have been audited. Busch Corporation's controller approached a public accounting firm and was given an estimated cost of $20,000 to perform a review and $45,000 to perform an audit. 1. 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. 2. Calculate Busch Corporation's annual costs under each loan agreement, including interest and costs for the accounting/ auditing firm's services. Indicate whether Busch should keep its existing loan, accept the offer from BMO, or accept the offer from Desjardins.