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APV method

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › APV method

  • This topic has 3 replies, 2 voices, and was last updated 4 years ago by John Moffat.
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  • January 29, 2021 at 1:16 pm #608443
    Noah098
    Member
    • Topics: 935
    • Replies: 352
    • ☆☆☆☆☆

    sir do we use APV method, when capital structure changes significantly( let’s say equity increased significantly) or that only when company’s financial risk shifts significantly?

    January 29, 2021 at 4:13 pm #608471
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54701
    • ☆☆☆☆☆

    One thing leads to another. If the gearing changes significantly then automatically the financial risk attaching to the equity changes significantly.

    February 10, 2021 at 8:15 am #609884
    Noah098
    Member
    • Topics: 935
    • Replies: 352
    • ☆☆☆☆☆

    totally agree with what you say. but i think it answers my question only partially. I agree that a change in gearing will increase ke and require us to use APV. My question was more with respect to a direct change in equity rather gearing(which i know will definitely attractive use of APV).As in if we significantly alter our equity (leaving gearing untouched), by issuing shares etc. to fund an acquisition, does that require us to use APV method too?

    February 10, 2021 at 10:51 am #609910
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54701
    • ☆☆☆☆☆

    Yes, If there is a significant change in the gearing (whether it be as a result of more equity or more debt) then we should use an APV approach.

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