If the capital structure is stable, and free cash flows are expected to be growing at a constant rate at the horizon date, then the compressed adjusted present value model calculates the horizon value by discounting the post-horizon free cash flows and post-horizon expected future tax shields at the weighted average cost of capital.

Question

Quizplus · Accepted Answer

The compressed adjusted present value (APV) model calculates the horizon value by separately discounting the post-horizon free cash flows at the unlevered cost of capital and the post-horizon expected future tax shields at the cost of debt, rather than using the weighted average cost of capital for both.

If the Capital Structure Is Stable, and Free Cash Flows