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Chapter 7
Adjusted Present Value (APV)
4.1 When is APV relevant?
APV should be used if the gearing ratio of the company changes as a result of
the project and its finance.
Note: The main reason we cannot use a WACC is that we do not know the final
new gearing level – even if we know the finance to be issued, the gearing will
be affected by the project NPV (which we are trying to calculate!).
APV is particularly recommended when there are complex funding
arrangements (e.g. subsidised loans).
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