
342 INTERNATIONAL FINANCIAL MANAGEMENT
sometimes accept a project by considering other factors of business, even if the NPV or APV
is zero.
The step-by-step procedure in calculating APV is summed up as below.
• Identify the operating cash flows of a project, and discount them at the all-equity
required rate of return.
• Identify the financing side effects of a project, and discount them separately at the
appropriate rate adjusted for their respective systematic risk.
• Combine (1) and (2) to obtain the APV.
An Indian firm proposes to make a capital investment in the United States. The expected net cash flows of the project
are presented ...