Problem 2: Electric Vehicles and Discounting [4 points] Consider the choice of buying one of two cars: an electric vehicle (EV), which costs $50,000, and a plug-in hybrid electric vehicle (PHEV), which costs $40,000. Suppose you expect to own the vehicle for 5 years and that you will save $600 per year in gasoline expenditures if you buy the EV. Further suppose that the annual real interest rate for a savings account is r = 3%. Ignore any depreciation of the vehicles for the entirety of this question. 2.A. [1 point] Which vehicle provides a better return on investment? By how much? 2.B. [1.5 points] How many years will it take for the two investments to be equal? Hint: use the formula for a geometric series: PT t=1 abt = ab(1 b T )/(1 b). 2.C. [1.5 points] Now suppose that you expect gasoline savings to increase at an annual rate of x = 50%. Would this rate justify buying an EV?