APV Flashcards
1
Q
How to do APV?
A
1) Calculate the value of un-leveraged project by discounting the expected free cash flow to the firm at the un-leveraged cost of equity.
2) Then, calculate the expected tax benefit from a given level of debt by discounting the expected tax saving at the cost of debt to reflect the riskiness of this cash flow.
3) Sum the value of the un-levered project or company and the net value of the debt financing.
2
Q
What is APV
A
APV is the NPV of a project or company if financed solely by equity plus the present value of financing benefits.
