How Do You Calculate Adjusted Present Value?
Adjusted present value (APV) is a financial measurement used to determine the worth of an investment. Specifically, it describes the potential profitability of a project by analyzing the present amount of cash inflows and comparing it to the present amount of cash outflows. Being able to calculate adjusted present value allows you to compare the value of competing businesses and ultimately make more informed investing decisions. Determine the project’s base net present value. To do this, you will need to know the cost of equity, the life of the project, the initial cost of the project and the cash flow for at least one year of operation. Once you have this information, use an online net present value calculator to determine the base NPV. You must use the cost of equity in place of the discount rate when entering the information into the calculator. Determine the present value of the financing effect. To do this, you will need to know how much debt will be incurred for the project, the
