The adjusted present value is the net present value (APV) of a project or company if financed solely by equity plus the present value (PV) of any financing benefits, which are the additional effects of debt. APV is calculated as its net present value plus the present value of debt financing side effects.
Formula:
PVCF = (CF / (RR + AB * (MR - RR))) - PC
PVTS = IE * ( DR / TR )
APV = PVCF + PVTS
CF - Cash Flow
PC - Project Cost
MR - Market Return
RR - Risk Rate
AB - Asset Beta
IE - Interest Expense
DR - Debt Rate
TR - Tax Rate
PVCF - PV of Cash Flows
PVTS - Present Value of Tax Shield
APV - Adjusted Present Value