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Risk adjusted WACC and adjusted present value

4.2 Overview of the APV method

The APV method evaluates the project and the impact of financing
separately:

Adjusted
Base case Financing
Present = +
Value NPV impact

Forecasted project Present value of
cash flows discounted financing side-effects
at a suitable cost of (e.g. issue costs, tax
equity (appropriate relief on debt interest),
to an ungeared discounted at the risk

company) free rate (or k d).

 If APV > 0, it means that the project, financed in this way, is
financially acceptable.

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