Rainwater Venture Capital would like to know whether an investment in a start-up company is…

Rainwater Venture Capital would like to know whether an investment in a start-up company is worthwhile. The start-up company (Project X) will only trade for two years and has forecast operating profits of £30m and £35m over the next two years. It estimates £5m will be spent on additional fixed assets in Year 2. Depreciation will be £2m per year and asset replacement will cost 50% of the annual depreciation charge. The tax rate is 20%. required) Calculate the Free Cash Flow (FCF) for years 1 and 2 for the start-up. b) If the start-up would cost Rainwater £40m to buy (paid immediately), adviseRainwater on whether or not it should purchase the firm. You can assume the appropriate discount rate is 12%.