The company’s vice president of marketing proposes a new program to significantly increase the product sales by 250,000 units per year throughout the 2016–2022 period. Specifically, it is suggested that the company takes the following actions:

a. Spend $2.5 million over the period of 2016–2018 as promotional expenditures—

for example, spend $1.0 million each in the years 2016 and 2017, and $0.5 million in the year 2018.

b. Make a one-time investment of $1.4 million in plants and equipment needed at the beginning of 2016 to generate these additional products. No new warehouse capability is needed. This investment is to be depreciated on a straightline basis over the seven-year period. There will be no salvage values for these plants and equipment in 2019.

It is further assumed that the product unit cost is $8.00 in 2016, and it is estimated to increase by 3% per year. The product unit price is $20 in 2016, and it is estimated to change as shown in the following table:

Items 2016 2017 2018 2019 2020 2021 2022 Unit price $20.00 $20.60 $21.00 $21.15 $21.25 $21.25 $21.00 The SG&A expenditure is estimated at $1.25 million in 2016, and it will increase by 3% per year during the six-year period. A corporate tax of 40% must be paid for any marginal income. There is an interest charge during this period, and the company’s WACC is 8%.

If the company’s hurdle rate for this type of investment is 25%, would you recommend that the marketing initiative be approved?