15-5. (Cost of short-term financing) The R. Morin Construction Company needs to borrow $100,000 to help finance the cost of a new $150,000 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 $100,000 at a rate of 14 percent. Interest would be discounted, and a 15 percent compensating balance would be required. However, the compensating-balance requirement would not 19.07 be binding on R. Morin because the firm normally maintains a minimum de- 101 mand deposit (checking account) balance of $25,000 in the bank. Alternative BThe equipment dealer has agreed to finance the equipment with a 1-year loan. The $100,000 loan would require payment of principal and interest 3.1. totaling $116,300. interest 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? ite