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APV : Base Case NPV

Forums › ACCA Forums › ACCA AFM Advanced Financial Management Forums › APV : Base Case NPV

  • This topic has 1 reply, 2 voices, and was last updated 7 years ago by John Moffat.
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  • November 25, 2015 at 8:26 am #285105
    mingyan
    Member
    • Topics: 2
    • Replies: 3
    • ☆

    Dear Sir,
    I would like to ask for the base case npv, why we do not deduct the interest cost before discounting it with the ungeared cost of equity?

    November 25, 2015 at 8:40 am #285116
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51532
    • ☆☆☆☆☆

    You must ask in the Ask the Tutor Forum in future if you want me to answer – this forum is for students to help each other.

    With APV, the base case NPV is calculated assuming that it is all equity financed (so no interest). As per Modigliani and Miller, the only benefit of using debt is because of the tax relief on the interest and this is dealt with separately in arriving at the APV.

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