(Cost of short-term financing) The R. Morin Construction Company needs to borrow $80 comma 000 to help finance the cost of a new $112 comma 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 Along dashThe firm's bank has agreed to lend the $80 comma 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 be binding on R. Morin because the firm normally maintains a minimum demand deposit (checking account) balance of $ 20 comma 000 in the bank. Alternative Blong dashThe equipment dealer has agreed to finance the equipment with a 1-year loan. The $80 comma 000 loan would require payment of principal and interest totaling $92 comma 456.

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?