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why APV would be appropriate in place of discounting the free cash flows at the after-tax...

why APV would be appropriate in place of discounting the free cash flows at the after-tax WACC.

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Answer #1

APV would be a better method since this method requires fewer assumptions than the WACC method. It is also less prone to error. Unlike WACC method used for discounting cash flows, the APV seeks to value the effects of the cost of equity and cost of debt separately.This is more practical than using a static debt equity ratio. The APV method is based upon value additions in situations when the debt equity ratio is liable to change. Hence it is more practical than the WACC method.

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