Property Investment Analysis Using Adjusted Present Values. The Appraisal Journal.
Property Investment Analysis Using Adjusted Present Values: Modifications, The Appraisal Journal.
For valuations conducted in the framework of the Adjusted Present Value approach we show that a discount rate r* is adequate to value step-up induced depreciation benefits.
In the case that the valuation of the tax shield of asset step-ups is not conducted via the Adjusted Present Value approach, the tax advantage of debt is not accounted for in a separate term and thus has to be included in the discount rate of the cash flows to be valued.
For the valuation of the step-up induced tax benefits, two alternative approaches are meaningful: a standalone valuation, which only calculates the net present value of the tax shield by applying a discount rate which includes the tax benefit of debt with respect to the financing mix, or a valuation via an additional term in the framework of the Adjusted Present Value method (Myers (1974), where the debt tax benefit is already accounted for in the second term of the APV-Formula.
The premia are the risk adjusted present values of the underwriting costs.
(27) The objective function is [[alpha].sub.if][S.sub.f][sup.uo]+[W.sub.][u.sup] where _S.sub.f][sup.uo] is the uninsured stock value of the old shareholders' stake in the firm, [W.sub.if][sup.u] is the risk adjusted present value of the manager's wealth loss, and [[alpha].sub.if] is the manager's initial ownership stake in the corporation.