AAA Car Rentals are considering a purchase of new electric vehicles for its fleet. Each EV will cost $35,000 and they plan to buy 100 vehicles. Each EV can be used for up to 5 years, but after 4 years, AAA plans to sell the EVs to used car dealers for $23,000. The EVs are going to be depreciated using MACRS (see below). Each EV provides oerational savings of $4,000 per year. AAA WACC is 12% and it's in the 20% tax bracket.
Years of use	1	2	3	4	5
Salvage value	$ 29,000.00	$ 27,500.00	$ 25,500.00	$ 23,000.00	$ 20,000.00
Depreciation	25%	40%	20%	10%	5%
Book value $35,000
a. What is the economic life of an EV? For how many years should AAA Car Rentals use its EVs?
b. The future conditions in the used EV market are uncertain. The salvage value may either fall by 20% or increase by 20% of the values in the table above. Conduct the sensitivity analysis. How do your answers to part a change?
c. Conduct the Monte Carlo simulation. Roll a 6-sided die 10 times. Record the results. If the number rolled is 1-3, the salvage values will fall 20%. If the number rolled is 4-6, the salvage values will rise 20%. What is the projects ENPV and std deviation of NPV? Assume that the EVs are going to be used for 4 years.