Adjusted Present Value - APV
Categories: Financial Theory, Company Management, Company Valuation, Banking
Just see our opus on Present Value. It won The Bucky (Academy Award for Finance Video).
"Adjusted," in this case, takes into account all of the elements of a net present value projection of future cash flows and what they're worth today.
Usually, adjustments to present value calculations include things like taxes, and taxes net of the effects of leverage, or debt, as well as dilution from warrants and other weird curve balls that get thrown into the calculated values of companies in the market place.
Remember that interest paid on debt is directly tax deductible, such that the government is essentially splitting the cost of companies, or at least underriding a meaningful part of it when they use leverage, either in their operations or for acquisitions. So adjusting net present value usually maths the crap out of these calculations, usually with the goal of goosing up the value of the company.
Why the goosing? Because most of these adjusted present value calculations are done by the investment bankers hired to sell the company. Think of them as real estate brokers, plus a hundred SAT points.
Related or Semi-related Video
Finance: What is Hurdle Rate?62 Views
Finance allah shmoop shmoop what is ah hurdle rate Well
a hurdle rate refers to the investment return minimum that
an investment project requires for it to be worth taking
the risk and effort to do it in the first
place All right what does that really mean Well you're
the new ceo of baby's first chainsaw inc a project
manager present to you the opportunity to open a new
line of business called grand pas last chain saw going
into that business will cost you one hundred million box
of initial investment in large print labeling walker accessible attachments
jittery hand stabilizers and some extra denture cream You as
ceo are looking at eight other projects you can afford
to do on ly one and the best of the
eight other projects is a similar product called the unhinged
midlife crisis chainsaw which has been garnering a lot of
early interest That project has return rate of fourteen percent
so the project manager presenting grandpas last chainsaw now has
a hurdle rate that must be above the highest last
hurdle or fourteen percent fourteen percent annualized return got it
and that's as presented by the project manager pitching investment
in the mid life crisis model meaning they think it'll
return fourteen percent a year on the investment Got it
Whichever of those eight competitive project managers presents the most
believable projections for sales and profits that exceed the others
well they'll soon become king of the family chainsaw market
And the ones who don't well let's just say they 00:01:38.855 --> [endTime] use a few extra bodies over in product development
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