2. Valuation
Apv Method — Quiz
Test your understanding of apv method with 5 practice questions.
Practice Questions
Question 1
What is the primary distinction of the Adjusted Present Value (APV) method in corporate finance?
Question 2
A project forecasts unlevered free cash flows of 150 000 in Year 1, 200 000 in Year 2, and 250 000 in Year 3. The unlevered cost of equity (r_u) is 8 %. What is the present value of these cash flows? (Round to the nearest thousand.)
Question 3
A firm raises 600 000 of debt at 5 % interest, amortized straight-line over 3 years (principal repayment of 200 000 each year). The corporate tax rate is 30 %. Assuming tax shields are discounted at the cost of debt (5 %), what is the present value of the interest tax shields? (Round to the nearest hundred.)
Question 4
Why are the unlevered free cash flows discounted at the unlevered cost of equity (r_u) in the APV method?
Question 5
Which of the following is a negative financing side effect that must be subtracted when calculating APV?