Aubegere Ltd. is considering expanding its manufacturing facilities, as a recent sale to a new customer has identified a new target market for a variation of its existing product. Aubegere would need to acquire new equipment at a cost of $650,000, but has room in its current building to house the additional equipment. An additional investment in working capital of $70,000 will also be required.

It is expected that cash inflows from sales will be $300,000 per year, and that operating expenses will be $140,000. Aubegere expects these cash flows to be generated for six years, at which time its investment in working capital will be recovered. The equipment will need a major repair of $80,000 at the end of year 3, and is expected to have a resale value of $100,000 at the end of year 6.

Aubegere's cost of capital is 12%.

Required:

8 a) Using NPV analysis, determine whether this expansion should be undertaken. Support your answer with the relevant calculations.Without doing any additional calculations, is the IRR greater or less than 12%?

1 b)Identify a change in one assumption that would result in the opposite decision as to whether or not to invest in the expansion.