1 answer

An alternate approach to discounted cashflow valuation is the adjusted present value approach, where you value...

Question:

An alternate approach to discounted cashflow valuation is the adjusted present value approach, where you value the firm with no debt (unlevered firm) first and then consider the value effects of debt. What is the fundamental difference between the cost of capital approach and the APV approach and why might they generate different answers?


Answers

These two approaches can get identical results in theory. But in reality it is different due to 2 reasons.

a) APV approach considers tax benefit from a dollar debt value, usually based upon exisiting debt.

b) both models consider bankruptcy costs very differently with APV approach providing more flexibility in considering indirect bankruptcy costs. Hence, APV approach yield more conservative estimate of value.

.

Similar Solved Questions

1 answer
Part 2: Label the peaks, fill in the table with related information and solve the structure....
Part 2: Label the peaks, fill in the table with related information and solve the structure. You should end up with a final structure with each set of protons labeled with the corresponding peak Peak Labels Integration Ratio Splitting Pattern chemical (sets of win the set) neighbors +1) Shift Final,...
1 answer
3. Number of valence electrons in Fe (atomic number of 26) is equal to a. 6...
3. Number of valence electrons in Fe (atomic number of 26) is equal to a. 6 b. 2 jo Joo...
1 answer
Fcx) = x²- 2x +4 X-0 alte find interceptsy asymptotes extrema
fcx) = x²- 2x +4 X-0 alte find interceptsy asymptotes extrema...
1 answer
Please show calculations Consider the following circuit of pMOS and nMOS transistors. B-[ A6 AC What...
please show calculations Consider the following circuit of pMOS and nMOS transistors. B-[ A6 AC What is the value of Y as a function of A and B? a. The value is: Y = A + B. The value is: b. Y = A + B. The value is: OCY = ĀB. The value is: d. Y = AB....
1 answer
DISCRETE MATHEMATICS Problem 3 (10 points) Use mathematical induction to prove the following statement for all...
DISCRETE MATHEMATICS Problem 3 (10 points) Use mathematical induction to prove the following statement for all n 21. For full credit, mention the base case (1pt), the induction hypothesis (1 pt) and the induction step (8 pts). 12 22 32...
1 answer
Nona Curry started her own consulting firm, Marin Inc., on May 1, 2022. The following transactions...
Nona Curry started her own consulting firm, Marin Inc., on May 1, 2022. The following transactions occurred during the month of May. May 1 Stockholders invested $17,100 cash in the business in exchange for common stock. 2 Paid $684 for office rent for the month. 3 Purchased $570 of supplies on accou...
1 answer
According to the American Time Use Survey, the mean number of hours each day Americans age 15 and older spend eatin...
According to the American Time Use Survey, the mean number of hours each day Americans age 15 and older spend eating and drinking is 1.22. A researcher wanted to know if Americans age 15 to 19 spent less time eating and drinking After surveying 50 Americans age 15 to 19 and running the appropriate h...
1 answer
What are three common software solutions characterize an eProcurement automated organization? Supplier Relationshi Management (SRM) Enterprise Resource Planning (ERP) Customer Relations Management (CR...
What are three common software solutions characterize an eProcurement automated organization? Supplier Relationshi Management (SRM) Enterprise Resource Planning (ERP) Customer Relations Management (CRM All of the above None of the above...
1 answer
32. The credibility of the central bank: a. promotes long-run growth. b. is irrelevant for controlling inflation. c...
32. The credibility of the central bank: a. promotes long-run growth. b. is irrelevant for controlling inflation. c. is crucial for controlling inflation and stabilizing output d. promotes sensible fiscal policy. e. implies low interest rates. 33. You are the head of the central bank and you want to...
1 answer
Provide the structure for the compound while using as much of the NMR as possible. show...
provide the structure for the compound while using as much of the NMR as possible. show work. 26 29. C10H14 (20 pts) Pr NMR 7 integral values 129.2 129.2 20 PPM Cube...
1 answer
Please write a one paragraph cover letter about what the story down below symbolizes and what...
Please write a one paragraph cover letter about what the story down below symbolizes and what it teaches us. Minnu was a sweet, adorable and delightful young lady, matured six years. She was a lovable child as she generally complied with her seniors. Minnu's folks cherished her for her stunning ...
1 answer
Bi l) Led on top of is mounted on top of vertical opring. The spring is L metre煜long when d to the ground. Thorce R due 2. A mass of m kilograms fkg) disengaged and the end not attached to the i up...
bi l) Led on top of is mounted on top of vertical opring. The spring is L metre煜long when d to the ground. Thorce R due 2. A mass of m kilograms fkg) disengaged and the end not attached to the i up and down, acted on by gravity, t to friction: soe the diegrom below The gravitational force is ...
1 answer
Describe two ways the middle ear amplifies sound
describe two ways the middle ear amplifies sound...
1 answer
2. Rank the following compounds in order of increasing pKa values (for part (a) - 1:...
2. Rank the following compounds in order of increasing pKa values (for part (a) - 1: lowest pKa, 3: highest pKa and for part (b) -1: lowest pKa, 4: highest pKa). Draw the structures of the conjugate base to rationalize your answers. OH OH...
1 answer
All other factors the same, financial instruments with a higher risk will have A) a lower...
All other factors the same, financial instruments with a higher risk will have A) a lower price. B) lower yield (return). C) higher liquidity D) an uncertain price....