Adjusted present value

Adjusted present value is the net present value of a proposed project as though it were to be solely financed with equity, and incorporating the present value of any effects associated with debt financing. This adjustment is intended to improve the present value of the project by incorporating any tax shield associated with the deductibility of interest payments for income tax purposes. Once the adjustment has been included, one should accept projects having a positive adjusted present value, and reject those with a negative adjusted present value.

Adjusted present value is an especially useful technique in situations where a business has a large debt load, so that there will likely be a tax shield that can be applied to net present value analyses.

Related Courses

Capital Budgeting