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John Moffat.
John Moffat.-
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Noah098
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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?
John Moffat
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One thing leads to another. If the gearing changes significantly then automatically the financial risk attaching to the equity changes significantly.
Noah098
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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?
John Moffat
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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.
Noah098
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