Lease-versus-purchase decision Antonio Di Capri is looking to get the new Alfa Romeo Giulia, a luxury sport sedan. He can either buy it at a retail price of €38,000 or get a lease from an auto dealership. The dealership offers a five-year lease that requires an initial payment of €5,000 (€5,000 down payment + €5,000 security deposit) and monthly payments of € 450. Purchasing requires a €2,500 down payment, sales tax of 22% (€6,160), and 60 monthly payments of €500. Antonio estimate that the value of the car will be €10,000 at the end of five years. He can earn 3% annual interest on his savings and is subject to a 22% sales tax on purchases.

Make a reasonable recommendation to Antonio, using a lease-versus-purchase analysis that, for simplicity, ignores the time value of money.

a. Calculate the total cost of leasing.

b. Calculate the total cost of purchasing.

c. Which option should Antonio choose?