# Describe the steps required to apply the APV approach.

Category:
 ▲ 0 ▼ ♥ 0 Describe the steps required to apply the APV approach.
Answer and Explanation Explanation

For applying the adjusted present value method, following steps must be followed:

Step 1- Identify post-merger annual free cash flows and annual tax savings.
Step 2- Calculate the unlevered cost of equity. This eliminates the effect of debt in the capital structure.
Step 3- Calculate the horizon value of unlevered cash flows. This is calculated using the constant growth formula with unlevered cost of equity as the discount rate.
Step 4- Calculate the horizon value of the tax shield. This is calculated using the constant growth formula with unlevered cost of equity as the discount rate.
Step 5- Calculate the unlevered value of operations as the present value of annual free cash flows and horizon
value of unlevered cash flows. The unlevered cost of equity is used as the discount rate.
Step 6- Calculate the value of the tax shield as the present value of annual tax savings and the horizon value of the tax shield. The unlevered cost of equity is used as the discount rate.
Step 7- Calculate the final value of operations as the sum of unlevered value of operations and the value of tax shield.

Following steps must be taken into consideration to apply adjusted present value method:

Step 1- Identify post-merger annual free cash flows and annual tax savings.
Step 2- Calculate the unlevered cost of equity.
Step 3- Calculate the horizon value of unlevered cash flows.
Step 4- Calculate the horizon value of the tax shield.
Step 5- Calculate the unlevered value of operations. It is the sum of the present value of annual free cash flows and the horizon value of unlevered cash flows.
Step 6- Calculate the value of the tax shield as the present value of annual tax savings and the horizon value of the tax shield.
Step 7- Calculate the final value of operations as the sum of unlevered value of operations and the value of tax shield.

Click the button to login/signup and buy full solution at 2 USD only.

## Assignment Writers are Online Now!

Need to pay someone to write your paper from scratch? We have experts for all types of assignments.

🎓 Write my Essay
📚 Write my Persuasive Essay
📋 Write my Argumentative Essay
🧑‍💻 Write my Reflective Essay
📑 Write my Research Paper
📜 Write my Thesis Paper
📘 Write my Dissertation
📋 Write my Case Study
📝 Write my Online Exam
✒️ Write my Term Paper