Another Mystery Algorithm

Consider the following mystery algorithm:
Input: PDA $M = (Q,\Sigma,\Gamma,s,\Delta,W)$ and NDFA $M' = (Q',\Sigma,\Delta',s',W')$, where $M'$ has no λ-transitions
Output: PDA $M^* = (Q \times Q',\Sigma,\Gamma,(s,s'),\Delta^*,W \times W')$, where $$ \Delta^* = \left\{((p,p'),x,y,(q,q'),z)\ \big|\ (p,x,y,q,z) \in\Delta \wedge (p',x,q') \in \Delta'\right\} \cup \left\{ ((p,p'),\lambda,y,(q,p'),z)\ \big| (p,\lambda,y,q,z) \in \Delta \right\} $$

  1. What output does the algorithm produce given the following as input:
  2. Is the requirement that input $M'$ has no $\lambda$-transitions a serious limitation?
  3. What general property of context-free languages and regular languages does this algorithm prove?