Corporate Finance
Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
bartleby

Concept explainers

bartleby

Videos

Textbook Question
Book Icon
Chapter 18, Problem 1CQ

APV How is the APV of a project calculated?

Expert Solution & Answer
Check Mark
Summary Introduction

To determine: Adjusted present value and how it is calculated.

Introduction:

Adjusted present value is known as NPV (net present value) of a company or project. By considering financial benefits, adjusted present value tax shield such as deductible interest.

Explanation of Solution

The following are the ways by which adjusted present value:

Adjusted present value is equivalent to the NPV of the project that is the project worth for an unlevered company added to the net present value of financing side-effects.

Formula for calculating adjusted present value:

The adjusted present value is computed by adding the base value of net present value with the NPV of all financial side effects.

Adjusted present value=[Base value of net present value+Net present value of all financial side effect]

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
Delta Corporation has the following capital structure:                                                                                             Cost                          Weighted                                                                                        (after-tax)      Weights       Cost Debt                                                                                      8.1%          35%         2.84% Preferred stock (Kp)                                                             9.6               5              .48 Common equity (Ke) (retained earnings)                             10.1            60            6.06  Weighted average cost of capital (Ka)                                                                    9.38%                                                                                a. If the firm has $18 million in retained earnings, at what size capital structure will the firm run out of retained earnings?  b. The 8.1 percent cost of…
Dillon Enterprises has the following capDillon Enterprises has the following capital structure.  Debt ........................ 40% Common equity ....... 60 The after-tax cost of debt is 6 percent, and the cost of common equity (in the form of retained earnings) is 13 percent.  What is the firm’s weighted average cost of capital?  a. An outside consultant has suggested that because debt is cheaper than equity, the firm should switch to a capital structure that is 50 percent debt and 50 percent equity. Under this new and more debt-oriented arrangement, the after-tax cost of debt is 7 percent, and the cost of common equity (in the form of retained earnings) is 15 percent. Recalculate the firm’s weighted average cost of capital.   b. Which plan is optimal in terms of minimizing the weighted average cost of capital?
Compute Ke and Kn under the following circumstances: a. D1= $5, P0=$70, g=8%, F=$7 b. D1=$0.22, P0=$28, g=7%, F=2.50 c. E1 (earnings at the end of period one) = $7, payout ratio equals 40 percent, P0= $30, g=6%, F=$2,20. Note: D1 is the earnings times the payout rate. d. D0 (dividend at the beginning of the first period) = $6, growth rate for dividends and earnings (g)=7%, P0=$60, F=$3. You will need to calculate D1 (the dividend after the first period).
Knowledge Booster
Background pattern image
Finance
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Text book image
Corporate Fin Focused Approach
Finance
ISBN:9781285660516
Author:EHRHARDT
Publisher:Cengage
Text book image
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Text book image
Managerial Accounting: The Cornerstone of Busines...
Accounting
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Cengage Learning
Text book image
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning
Text book image
Principles of Cost Accounting
Accounting
ISBN:9781305087408
Author:Edward J. Vanderbeck, Maria R. Mitchell
Publisher:Cengage Learning
Capital Budgeting Introduction & Calculations Step-by-Step -PV, FV, NPV, IRR, Payback, Simple R of R; Author: Accounting Step by Step;https://www.youtube.com/watch?v=hyBw-NnAkHY;License: Standard Youtube License