Antonio is considering renovating his apartment in Milan. He visits Meridiani and looks at different bedroom furniture sets. The bedroom sets are generally very expensive, and even though he has the cash to pay for one, he is thinking about getting a loan and not exhaust all his savings. The bedroom set Antonio selects costs €10,000, and Meridiani offers a financing plan that would allow Antonio to either 

(1) Put 20% down and finance the balance at 6% annual interest compounded monthly over 60 months or 

(2) Receive an immediate €500 cash rabate. Antonio currently earns 2% annual interest rate compounded yearly on his savings in a bank.

a. Calculate the cash down payment for the loan.

b. Calculate the monthly payment on the available loan. Treat the current loan as an annuity and solve for the monthly payment.

c. Calculate the net cash outlay under the cash purchase option.

d. Given the interest rate on his savings, what will Antonio give up (opportunity cost) over the 5 years if he pays cash?

e. What is the cost of the cash alternative at the end of 5 years?

f. Should Antonio choose the financing or the cash alternative?