What is a modified current value?
The modified current value (APV) is a net present value (NPV) plus the current value (PV) of all financial benefits or additional debt effects. For example, the advantage of debt would include the tax deductibility of interest paid on the debt. The present value is calculated by adjusting or discounting the future or the expected amount to take into account the reduction of value over time. It is assumed that the project is financed from its own capital of business. The value of the assets is determined before the project, then the benefits and costs of loans are calculated. The company can then compare different types of project financing by comparing the modified current value.
In order to determine the modified current value of the investment or project, the person must first calculate the net current value of the project. Necessary information includes Equity costs how long the project will take, the initial project costs and cash flow for the first year of operation. A net calculator of the current value could be attached to the calculation.
The current value of the benefits and costs of loans is then added to the net current value. The formula for determining the current value of the financial effect would be F = (T x D x C)/I, where F is the effect of financing, T is a tax rate, D is a debt, C is the cost of debt and I is the interest rate of debt. The final step is to add the current value of the financing effect to the basic network of the current value; The sum of two numbers is a modified current value. This value is used in determining which projects or investments would have the highest value for the company.
The disadvantage of financing the project with debt rather than with its own capital is that it involves a greater risk for business. However, the use of debt financing has the advantage of maintaining a business interest. Another advantage for the use of debt financing is tax implication - the interest that is paid from loans is deductible.
Companies can choose capital for finAnnutting projects to provide additional funds. However, obtaining additional stock funds by obtaining other investors could dilute the company's control. In addition, the amounts paid to shareholders in the form of dividends are not deductible for business. Whether the company should use the financing of its own capital or debt financing will depend on things such as potential investors, available capital, tax rates, types and number of projects considered and the company's current debt.