Definition for : Adjusted present value, APV
Adjusted Present value is a technique for valuing a levered company. It takes into account all sources of Value creation and destruction. The adjusted Present value is equal to the sum of the value of the unlevered company and the value of Tax shield less the Present value of Financial distress costs. Each of these components is discounted (see Discounting) at different rates representing the different risks. Difficult to implement, this method can Yield interesting results in the very specific cases: very evolutive Financial structure over short-term (this is the case of LBO transactions or Project financing), an Investment made in foreign markets.
(See Chapter 34 Debt, equity and options theory of the Vernimmen)
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