'%3e%3c!--%20Dark%20blue%20left%20arm%20--%3e%3cpath%20d='M72%2072%20H174%20L286%20420%20H208%20Z'%20fill='url(%23leftBlue)'%20stroke='%230b1f4d'%20stroke-width='2'%20stroke-linejoin='round'%20/%3e%3c!--%20Bright%20blue%20upper-right%20arm%20--%3e%3cpath%20d='M338%2072%20H440%20L304%20320%20L264%20246%20Z'%20fill='url(%23rightBlue)'%20stroke='%231554d1'%20stroke-width='2'%20stroke-linejoin='round'%20/%3e%3c!--%20Bright%20blue%20lower-right%20arm%20--%3e%3cpath%20d='M350%20254%20H422%20L286%20420%20H208%20Z'%20fill='url(%23lowerBlue)'%20stroke='%231246c8'%20stroke-width='2'%20stroke-linejoin='round'%20/%3e%3c/g%3e%3c/svg%3e)
Nvidia
Estimated Fair Value$232.93
Current Stock Price$229.28
Revenue Growth49.8%
Terminal Growth2.5%
Unlevered Cost of Capital15.3%
Unlevered Firm Value$5569.8B
Tax Shield Value$6.2B
Adjusted Present Value (APV)
For informational and educational purposes only • Not investment advice.
Compare APV estimates across companies
Apple
Estimated Fair Value$190.33
Current Stock Price$336.64
Revenue Growth13.1%
Terminal Growth2.5%
Unlevered Cost of Capital10.4%
Unlevered Firm Value$2802.8B
Tax Shield Value$14.6B
Alphabet
This company isn't supported by APV.
Choose another company:
Microsoft
Estimated Fair Value$266.86
Current Stock Price$535.07
Revenue Growth15.1%
Terminal Growth2.5%
Unlevered Cost of Capital10.2%
Unlevered Firm Value$1951.3B
Tax Shield Value$11.0B
Revenue Growth Rate
Forecast Horizon
Terminal Growth
Equity Risk Premium
%
Range: 2–10%
What is Adjusted Present Value?
Adjusted Present Value (APV) estimates a company's intrinsic value by separating the value of its operating business from the value created by financing decisions.
The operating business is valued as if it were financed entirely with equity, while the financing benefit from debt is valued separately through the Interest Tax Shield.
The Unlevered Firm Value and the Present Value of the Interest Tax Shield are then combined to determine the Adjusted Firm Value.
APV Formulas
Unlike a traditional DCF, APV values the operating business independently of financing decisions. The value created by debt financing—the tax shield—is calculated separately and then added to the operating value.
Free Cash Flow to the Firm
Unlevered Firm Value
Terminal Value
Annual Tax Shield
Adjusted Firm Value
Fair Value per Share
How Adjusted Present Value Works
Adjusted Present Value separates operating value from financing value. The model first values the business as if it were entirely equity financed, then adds the present value of the debt tax shield, adjusts for net debt or net cash, and converts the result into fair value per share.
Forecast
Revenue
→
Estimate & Forecast
FCFF
→
Calculate
Unlevered Cost
→
Calculate
Terminal Value
→
Calculate
Unlevered Firm Value
→
Calculate
Interest Tax Shield
→
Adjusted
Firm Value
→
Fair Value
Per Share
Key Model Assumptions
• Free Cash Flow to the Firm (FCFF) is projected over the selected Forecast Horizon.
• Starting Revenue and Free Cash Flow to the Firm (FCFF) use trailing twelve-month (TTM) values when available, with the latest annual values used as a fallback.
• The Base Revenue Growth Rate is derived from the company's historical Revenue Growth and adjusted according to the selected Revenue Growth scenario.
• Revenue Growth gradually converges toward the Terminal Growth Rate over the forecast period.
• The model uses the current FCFF Margin as its starting point and gradually converges toward a normalized FCFF Margin based on the median of up to the five most recent valid historical FCFF Margins.
• The operating business is valued as if it were financed entirely with equity, with projected FCFF discounted using the Unlevered Cost of Capital.
• The Risk-Free Rate is based on the U.S. 10-Year Treasury yield published by the Federal Reserve Board.
• The company is assumed to maintain approximately its current Debt level during the explicit forecast period.
• The Interest Tax Shield is estimated from Debt, Cost of Debt and the Tax Rate, and discounted using the Cost of Debt.
• Terminal Growth represents the company's sustainable long-term growth rate.
• Starting Revenue and Free Cash Flow to the Firm (FCFF) use trailing twelve-month (TTM) values when available, with the latest annual values used as a fallback.
• The Base Revenue Growth Rate is derived from the company's historical Revenue Growth and adjusted according to the selected Revenue Growth scenario.
• Revenue Growth gradually converges toward the Terminal Growth Rate over the forecast period.
• The model uses the current FCFF Margin as its starting point and gradually converges toward a normalized FCFF Margin based on the median of up to the five most recent valid historical FCFF Margins.
• The operating business is valued as if it were financed entirely with equity, with projected FCFF discounted using the Unlevered Cost of Capital.
• The Risk-Free Rate is based on the U.S. 10-Year Treasury yield published by the Federal Reserve Board.
• The company is assumed to maintain approximately its current Debt level during the explicit forecast period.
• The Interest Tax Shield is estimated from Debt, Cost of Debt and the Tax Rate, and discounted using the Cost of Debt.
• Terminal Growth represents the company's sustainable long-term growth rate.
Step 1 — Forecast Revenue
Revenueₜ = Revenueₜ₋₁ × (1 + Revenue Growthₜ)
Historical Revenue Growth provides the initial forecast assumption.
The Base Revenue Growth Rate is derived from the company's historical Revenue Growth. The selected Revenue Growth scenario adjusts this rate before the forecast begins.
As the company matures, Revenue Growth gradually converges toward the Terminal Growth Rate.
Step 2 — Estimate Free Cash Flow to the Firm
FCFF = EBIT × (1 − Tax Rate) + Depreciation & Amortization − Capital Expenditures − Change in Working Capital
Free Cash Flow to the Firm represents the cash generated by the operating business that is available to both shareholders and lenders before financing costs.
APV uses FCFF because the operating business is valued separately from the effects of debt financing.
Step 3 — Forecast Future Free Cash Flow to the Firm
FCFF Margin = Current FCFF / Current Revenue
Forecast FCFFₜ = Forecast Revenueₜ × Forecast FCFF Marginₜ
Forecast FCFF Margin = Current FCFF Margin → Normalized FCFF Margin
The model applies a projected FCFF Margin to each year's projected Revenue to estimate future Free Cash Flow to the Firm.
The model begins with the current FCFF Margin and gradually moves toward a normalized margin based on the median of up to the five most recent valid historical FCFF Margins. This helps reduce the impact of unusually high or low cash flow in a single year.
Step 4 — Calculate the Unlevered Cost of Capital
Unlevered Beta = Levered Beta / [1 + (1 − Tax Rate) × Debt / Equity]
Unlevered Cost of Capital = Risk-Free Rate + Unlevered Beta × Equity Risk Premium
APV first values the operating business independently of its financing structure. The model therefore removes the effect of debt from the company's reported Beta to estimate an Unlevered Beta, which reflects the risk of the operating business.
The Unlevered Beta is then used in the Capital Asset Pricing Model (CAPM) to estimate the Unlevered Cost of Capital. This discount rate is used to value the operating business before the value created by debt financing is added separately.
Step 5 — Calculate Terminal Value
Terminal Value = Final Forecast FCFF × (1 + Terminal Growth) / (Unlevered Cost of Capital − Terminal Growth)
Present Value of Terminal Value = Terminal Value / (1 + Unlevered Cost of Capital)n
Terminal Value represents the operating cash flows expected after the explicit forecast period. The final projected FCFF is grown at the Terminal Growth Rate and capitalized using the Unlevered Cost of Capital.
The Terminal Value is then discounted back to present value using the Unlevered Cost of Capital.
Step 6 — Calculate Unlevered Firm Value
Present Value of Forecast FCFF = Σ FCFFₜ / (1 + Unlevered Cost of Capital)t
Unlevered Firm Value = Present Value of Forecast FCFF + Present Value of Terminal Value
Each projected Free Cash Flow to the Firm and the Terminal Value are discounted to present value using the Unlevered Cost of Capital. Together, they determine the Unlevered Firm Value.
This represents the value of the operating business before considering the financing benefits of debt.
Step 7 — Calculate the Interest Tax Shield
Annual Interest Tax Shield = Debt × Cost of Debt × Tax Rate
Present Value of Interest Tax Shield = Present Value of Explicit Tax Shields + Present Value of Terminal Tax Shield
Explicit and terminal tax shields are discounted using the Cost of Debt.
Interest expense can reduce taxable income, creating an Interest Tax Shield that represents a financing benefit from debt.
The annual tax shield is estimated from Debt, Cost of Debt and the Tax Rate. The model assumes that the current level of Debt remains constant throughout the explicit forecast period and continues into the terminal period. The resulting tax shields are discounted using the Cost of Debt to determine their Present Value.
Step 8 — Combine Operating and Financing Value
Adjusted Firm Value = Unlevered Firm Value + Present Value of Interest Tax Shield
The Adjusted Firm Value combines the value of the operating business with the financing benefit created by debt.
Separating operating value from financing value is the defining feature of the Adjusted Present Value method.
Step 9 — Calculate Fair Value per Share
Equity Value = Adjusted Firm Value − Net Debt
Fair Value per Share = Equity Value / Shares Outstanding
The final step converts the Adjusted Firm Value into the value attributable to common shareholders by adjusting for Net Debt or Net Cash.
Dividing Equity Value by Shares Outstanding produces the estimated Fair Value per Share. If the Adjusted Firm Value does not produce a positive Equity Value after adjusting for Net Debt, the Fair Value per Share is shown as zero.