Adjusted Present Value (APV) Valuation

Value a project by separating operating value from financing side effects

Core Inputs
APV Concept: Instead of using WACC (which mixes leverage and operations), APV values a project in two steps: (1) value the unlevered cash flows, then (2) add the value of financing side effects (mainly the tax shield from debt).
APV = NPV(unlevered cash flows) + PV(Tax Shield) + PV(Other financing effects)

PV(Tax Shield) = t x D = (Tax Rate) x (Debt Amount)

Typically we assume debt is constant over time, so tax shield = perpetuity.
Cash Flow Inputs -- Enter up to 10 years
Year Unlevered Free Cash Flow ($M)

Edit the cash flows directly. Press Tab to move between cells. Values are used for NPV calculations.

APV Valuation Results
Base Case NPV
(Unlevered)
$500M
PV of Tax Shield
(Perpetuity)
$50M
APV
(Base + Tax Shield)
$550M
Equivalent WACC NPV
$550M
Key Insight: The APV should approximately equal the NPV calculated using WACC (if WACC is properly calibrated). This validates both approaches.
Decomposition -- Where Does Value Come From?
Sensitivity to Debt Level

APV increases with debt (due to tax shield), but real distress costs would cap optimal leverage

Year-by-Year Breakdown
Year Unlevered FCF ($M) Discount Factor Present Value ($M) Cumulative PV ($M)

About APV:

Adjusted Present Value is particularly useful when leverage is expected to change over time, or when there are significant non-tax financing side effects (subsidies, guarantees, etc.). The method cleanly separates the operating value of a project from the financing value, making it easier to understand where value creation comes from.