This adjusted present value template guides you through the calculation of APV starting with the value of the unlevered project and PV of debt financing.
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The APV method to calculate the levered value (VL) of a firm or project consists of three steps:
Step 1
Calculate the value of the unlevered firm or project (VU), i.e. its value with all equity financing. To do this, discount the stream of FCFs by the unlevered cost of capital (rU).
Step 2
Calculate the net value of debt financing (PVF), which is the sum of various effects, including:
PV(interest tax shields) – our main focus
PV(issuance costs)
PV(financial distress costs)
PV(other market imperfections)
Step 3
Sum up the value of the unlevered project and the net value of debt financing to find the adjusted present value of the project. That is, VL = VU + PVF.
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