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In APV do we use pre tax cash flows or post tax cash flows for base case NPV?
And secondly What is the difference between the APV method and Combined business method? Because if I am right APV must always be used when the financial risk of the entity changes but in combined business questions we use other methods (like MM formulas) and not the APV method? Which is very confusing.
In APV you use the same cash flows as you always do in investment appraisal – i.e post tax.
APV is used when there is a major change in the level of gearing (and usually, but not always, the examiner makes it clear in the requirements when he wants an APV approach).
APV is purely an MM approach!!
All of this is explained in my free lectures 🙂
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