Adjusted Present Value (APV) Model

Adjusted present value model for capital budgeting decision. This is one of the methods used to do capital budgeting for a levered firm. This method takes into account the tax shield value associated with tax deduction for interest expense. The formula can be written as: APV NPV TcD, where APV Adjusted present value; NPV Net present value; Tc Marginal corporate tax rate; D Total corporate debt; and TcD Tax shield value. This method is based upon M&M Proposition I with tax.