The R. Morin Construction Company needs to borrow $110,000 to help finance the cost of a new $165,000 hydraulic crane used in thefirm's commercial construction business. The crane will pay for itself in oneyear, and the firm is considering the following alternatives for financing itspurchase:

Alternative A.Thefirm's bank has agreed to lend the $110,000 at a rate of 12 percent. Interest would bediscounted, and a 15 percent compensating balance would be required.However, thecompensating-balance requirement is not binding on the firm because it normally maintains a minimum demand deposit(checking account) balance of $27,500 in the bank.

Alternative B.The equipment dealer has agreed to finance the equipment with a1-year loan. The $110,000 loan requires payment of principal and interest totaling $127,237.

a. The cost of Alternative a would be_____%. (Round to two decimalplaces.)

The cost of Alternative B would be_______%.(Round to two decimalplaces.)

Which alternative should Morinselect?(Select from thedrop-down menu.)

Alternative A Or Alternative B? for financing its purchase

b. If thebank's compensating-balance requirement had necessitated idle demand deposits equal to 15 percent of theloan, what effect would this have had on the cost of the bank loanalternative? _______ (Round to two decimalplaces.)

Therefore, R. Morin Construction Company should select

Alternative B or Alternative B ??? for financing its purchase