Can anyone answer this simple question

Page no : 2

silvi ubal gomes (Awaiting Final Result) (82 Points)
Replied 20 August 2011

in asset buying decision making the discounting factor is after tax itself. I didnt get the meaning of APV capital budgeting please explain.

CA Sahil Singla.. (Service Tax ) (3746 Points)
Replied 20 August 2011

APV means Adjusted Present Value concept which is highly used in case of Companies having High Debt Equity Ratio.

(Guest)

Adjusted NPV assumes Whole business is Financed by equity.

So base NPV rightly caclulated at ke which obviously has to be pretax.

Now Temporarily Debt funds injected into the business allthough are not main cost of capital will certainly give tax shield i e tax saving.

Now these tax saving are inflows(pre tax) .

Question arises how pre tax -cos they are as good as any other inflow that would arise to a business.

Now wat rate u should discount them-Are these Inflows ( tax saving) stand alone eligible for any tax saving, NO there fore discount by pre tax.

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