(Cost of​ short-term financing​) The R. Morin Construction Company needs to borrow ​$80,000 to help finance the cost of

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(Cost of​ short-term financing​) The R. Morin Construction
Company needs to borrow ​$80,000 to help finance the cost of a new
​$112,000 hydraulic crane used in the​ firm's commercial
construction business. The crane will pay for itself in 1​ year,
and the firm is considering the following alternatives for
financing its​ purchase: Alternative A-The ​firm's bank has agreed
to lend the ​$80,000 at a rate of 13 percent. Interest would be​
discounted, and a 15 percent compensating balance would be
required.​ However, the​ compensating-balance requirement would not
be binding on R. Morin because the firm normally maintains a
minimum demand deposit​ (checking account) balance of
$20,000 in the bank. Alternative B-The equipment dealer has
agreed to finance the equipment with a​ 1-year loan. The ​$80,000
loan would require payment of principal and interest totaling
​$92,568.
a. Which alternative should R. Morin​ select?
b. If the​ bank's compensating-balance requirement were to
necessitate idle demand deposits equal to 15 percent of the​ loan,
what effect would this have on the cost of the bank loan​
alternative?