FSA, Inc. is considering broadening its product line by introducing either product A or B. Both A and B

will require an initial investment of $20,000. Product A will generate $8,000 in incremental cash flows

each of the next four years. Product B will generate $10,000 in incremental cash flow each of the next

four years.

a) Calculate the NPV and IRR for both products. Assume a 10% required return.

b) Generate a graph of the NPV profiles for products A and B.

c) At what point does the line of Product A cross the horizontal axis?

d) At what point does the line of Product B cross the horizontal axis?

e) Which product should be selected and why?

Product A can be scaled up by a factor of four. That is with a $80,000 initial investment product A will

generate $32,000 in incremental cash flows each of the next four years.

f) Calculate the NPV and IRR for the scaled Product AName this Product A+

g) Generate a graph of the NPV profiles for Product A+ and B.

h) Which product A+ or B has the higher IRR?

i) Which product, A+ or B has the higher NPV?

j) If capital is not a constraint, which product should be invested in to increase the value of the

company the most assuming the required return is 10%.?

k) At approximately what level of required return will your answer to the above question change?