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John, Will we use “APV” every time the financial risk of business changes?
And how to deal the Capital Allowances in an APV calculation?
If there is a substantial change in the gearing then we use APV (although almost always in the exam, the examiner makes it clear as to whether or not he requires an APV approach).
Capital allowances are treated in exact the same way as always in arriving at the base case NPV – they have nothing to do with the method of finance.
It is only the tax benefit of the debt raised that is then added on to the base case NPV.Ok John from your interpretation, I understood that If a problem of “capital allowances” occur during APV calculation it will be treated as if in a normal NPV question, to reach the “Base Case NPV” figure. Is that correct?
And if so now for example, the Tax is paid is arrears then will the Capital Allowances be placed in accordance with the timing of tax payments?
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