Page 140 - AFM Integrated Workbook STUDENT S18-J19

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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