Charles Edouard Fromage Enterprises is considering an expansion project that requires an initial cash outlay of $50 million that will generate after-tax cash flows of $18 million in year 1, $22 million in year 2, $25 million in year 3, $30 million in year 4, and $32 million in year 5.  Calculate the Payback Period of this project if the cost of capital is 8%.  Formage Enterprises has a maximum payback period of 2.67 years. Should Charles E. Fromage expand?

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Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.