Question 4 - Total Points [20] A company has been considering the production of a new product and has two different methods of production, Option A and Option B. The costs and returns associated with Option A are displayed in the table below (all figures are in $ billions) and are based on expected on sales of 100,000 units. Assume that the cost of capital is 10% and that income is taxed at a rate of 50%. Ignore depreciation. Option B would require an extra investment of $11 billion more than Option A but would reduce variable costs by $100,000 per unit compared to those of Option A. Year o Years 1 to 5 Investment 15 37.5 Revenue Variable Cost Fixed Cost 30 3 Pre-tax Profits 4.5 Tax 2.25 Net Operating Profits 2.25 4a) What is the NPV of Option B? [10] 4b) Draw a break-even chart for Option B based upon projections of sales and explain how you would interpret the break-even figure (you can assume that market price is constant). [10]