What is adjusted present value?

The adjusted present value method is considered flexible, straightforward, and transparent. It can accommodate numerous financing components of complex projects, special situations, or various investment and financing effect interactions. Professional users of the APV formula can refine it according to the specific scenario involved.

What is the difference between discounted cash flow and adjusted present value?

The adjusted present value isn’t as prevalent as the discounted cash flow method. In practice, the adjusted present value is not used as much as the discounted cash flow method. It is more of an academic calculation but is often considered to result in more accurate valuations.

What is net present value in financial modeling?

In financial modeling, it is common practice to use Net Present Value with the firm’s Weighted Average Cost of Capital as the discount rate, which determines the unlevered value of the firm (its enterprise value) or the unlevered value of a project. The present value of net debt is deducted to arrive at equity value, if that’s what is desired.

What is the net present value of an unleveraged firm?

The net present value of the unlevered firm is $200,000 (PV of unleveraged cash flows obtained by discounting the FCF forecasted based on the un-leveraged cost of equity). The applicable tax rate is 35%, the debt level is $70,000, and the interest rate is 5%. Now calculate the adjusted present value of the project.