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Adjusted present value (APV) approach values a firm by separating:
AOperating cash flows valued at unlevered cost of equity, plus PV of financing side effects
BCash flow to equity discounted at WACC
CAsset book value plus market value of debt
DOperating cash flows discounted at risk-free rate only (within the standard regulatory framework)
Answer & Solution
Correct answer: A. Operating cash flows valued at unlevered cost of equity, plus PV of financing side effects
1. Identify what the question asks: this concept maps to apvmethod (§3.3).
2. Apply the framework or formula relevant to the topic.
3. Eliminate distractors and arrive at the correct option (A).
_Source: ICAI BoS CA Final Paper 2, Ch 13 "Business Valuation"_
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