CORPORATE FINANCE
12th Edition
ISBN: 9781307702804
Author: Ross
Publisher: MCG/CREATE
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Textbook Question
Chapter 18, Problem 1CQ
APV How is the APV of a project calculated?
Expert Solution & Answer
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.
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Suppose that you are a U.S.-based importer of goods from the United Kingdom. You expect the value of the pound to increase against the U.S. dollar over the next 30 days. You will be making payment on a shipment of imported goods in 30 days and want to hedge your currency exposure. The U.S. risk-free rate is 5.5 percent, and the U.K. risk-free rate is 4.5 percent. These rates are expected to remain unchanged over the next month. The current spot rate is $1.90.
1.Move forward 10 days. The spot rate is $1.93. Interest rates are unchanged. Calculate the value of your forward position. Do not round intermediate calculations. Round your answer to 4 decimal places.
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