The benefit of the ________ approach to firm valuation is that it allows us to segregate the value of a firm if it is all-equity,and the value of the tax benefits of debt.
A)capital structure
B)internal rate of return
C)net present value
D)adjusted present value

Question

Quizplus · Accepted Answer

The adjusted present value (APV) approach is specifically designed to separate the value of a firm's assets from the value of the tax benefits of debt. This is important when valuing a firm with an all-equity capital structure because it allows us to determine the value of a potential debt financing option separately from the firm's asset value. This approach starts with the unlevered value of the firm and adds the present value of tax shields that result from introducing debt.

The Benefit of the ________ Approach to Firm Valuation Is