Chapter 18, Problem 1CQ

APV How is the APV of a project calculated?

Summary Introduction

To determine: Adjusted present value and how it is calculated.

Introduction:

Adjusted present value is known as NPV (net present value) of a company or project. By considering financial benefits, adjusted present value tax shield such as deductible interest.

Explanation of Solution

The following are the ways by which adjusted present value:

Adjusted present value is equivalent to the NPV of the project that is the project worth for an unlevered company added to the net present value of financing side-effects.

Formula for calculating adjusted present value:

The adjusted present value is computed by adding the base value of net present value with the NPV of all financial side effects.

$\text{Adjusted present value}=\left[\begin{array}{l}\text{Base value of net present value}+\\ \text{Net present value of all financial side effect}\end{array}\right]$