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Forums › ACCA Forums › ACCA AFM Advanced Financial Management Forums › P4- APV
Can someone explain the principles of APV in terms of what it is and how it is applied as opposed to NPV
Apv is method of showing the effects of financing used in an investment
A co will always be financed by equity, but will sometimes use debt to finance a project. Using apv, the affect of the financing can be identified by splitting out the debt and equity, and identifying the debt benefits as per mogiglianis theory of debt financing, ie is cheaper
You discoint the project first using ke only, then do a reconciliation to apv by deducting issue costs from the npv, add any savings due to subsidised loans etc.. and benefit gained from the tax shield on the debt
Use apv when a project requires separate financing to the rest of the co, to show the benefit of the financing
Thanks alot