The APV method is the approach that determines the ________ level of debt according to the tradeoff theory.
A) optimal
B) minimal
C) maximal
D) nominal

Question

Quizplus · Accepted Answer

The APV method, or Adjusted Present Value method, is a financial valuation approach that calculates the total value of a company by adding the value of its assets and the present value of expected cash flows, adjusting for the effects of financing. According to the tradeoff theory, there is an optimal level of debt for a company that balances the tax benefits of debt with the costs of financial distress. Therefore, the APV method would determine the optimal level of debt for the company to achieve maximum value, making choice A the correct answer.

The APV Method Is the Approach That Determines the ________