To calculate the adjusted present value,you should:

Question

Quizplus · Accepted Answer

To calculate the adjusted present value (APV), you need to add the additional effects of debt (interest tax shield) to the all-equity project value. This is because APV calculates the total value of the project when debt is included, but adjusts for the tax benefits of debt. Multiplying the additional effects of debt by the all-equity project value (choice A) would not produce the correct result. Dividing the project's levered cash flow by the risk-free rate (choice C) or risk-adjusted rate (choice D) may be helpful in determining the value of the debt component, but it does not amount to calculating APV. Adding the pretax cost of debt to the project's all-equity NPV (choice E) would not properly account for the tax benefits of debt.

To Calculate the Adjusted Present Value,you Should