If the net present value of a project is −$10,000, and the net present value of leasing for the project is +$12,000, calculate the APV (adjusted present value)of the project.

Question

Quizplus · Accepted Answer

The formula for APV is:
APV = NPV + PV of financing side effects
In this case, the NPV of the project is negative, but the NPV of leasing for the project is positive. Therefore, we can incorporate the positive effect of leasing in the financing side effects part of the APV formula. Since the PV of financing side effect is +$12,000, we can simply add it to the NPV of the project to get the APV: −$10,000 + $12,000 = $2,000. Therefore, the best choice is B.

If the Net Present Value of a Project Is −$10,000