In the compressed adjusted present value model, the appropriate discount rate for the tax shield is the WACC.

Question

Quizplus · Accepted Answer

In the adjusted present value (APV) model, the appropriate discount rate for the tax shield is typically the cost of debt, not the weighted average cost of capital (WACC). The WACC is used to discount the unlevered free cash flows, while the cost of debt is used for the tax shield to reflect the risk associated with the debt financing.

In the Compressed Adjusted Present Value Model, the Appropriate Discount