Page 141 - AFM Integrated Workbook STUDENT S18-J19

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 Financing
Base case
Present = Base case NPV + Financing impact
impact
NPV
Value

Forecasted project cash Present value of financing

flows discounted at a side-effects (e.g. issue
suitable cost of equity costs, tax relief on debt

(appropriate to an ungeared interest), discounted at the
company) risk free rate (or k d).

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

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