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The adjusted present value model is especially useful in two situations. Briefly describe these two situations.

The adjusted present value model is especially useful in two situations. Briefly describe these two situations.

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Answer #1

Definition Adjusted Present value:-
The adjusted present value (APV) is the net present value (NPV) of a project or company if financed solely by equity plus the present value (PV) of any financing benefits, which are the additional effects of debt.

The formula for APV is given by:-
Adjusted Present Value = Unlevered Firm Value + Net Effect of Debt

APV usefull situations:-

1) APV shows an investor the benefit of tax shields from tax-deductible interest payments.

2) It is best used for leverage transactions, such as leveraged buyouts, but is more of an academic calculation

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