APV

Adjusted present value: start with unlevered business value, add the present value of financing benefits and subtract the present value of financing costs as applicable. It can be useful when financing changes over time, including but not limited to leveraged buyouts.

Also called Adjusted present value

APV in round numbers

Hypothetical: unlevered business value is US$40.0m and the present value of debt tax shields is US$4.0m at the same valuation date. Assume all other financing effects are zero. Adjusted present value is US$44.0m; this business value is not automatically equity value.

Hypothetical present values at one valuation date; other financing effects zero
firstUnlevered business value US$40.0m
+Present value of tax shields US$4.0m
=APV business value US$44.0m

Source: Damodaran: adjusted present value.

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