Adjusted present value

APV separates operating investment value from financing consequences. First calculate base-case NPV using operating cash flows and an ungeared required return appropriate to the business risk. Then add or subtract the present values of financing effects such as usable interest tax shields, subsidised finance and issue costs. Discount each effect at a rate consistent with its risk and timing; the cost of debt is common for specified debt-related tax shields but is not an automatic rate for every effect. APV is especially useful when financing proportions change materially.