An alternative approach to the enterprise valuation method adds the tax shield from paying interest back into the flows and discounts at a before-tax weighted average cost of capital.

Question

Quizplus · Accepted Answer

This approach is known as the Adjusted Present Value (APV) method, which adds the benefit of the tax shield to the discounted cash flows. This adjusted cash flow is then discounted at a before-tax weighted average cost of capital.

An Alternative Approach to the Enterprise Valuation Method Adds the Tax