Valuation Methods: APV vs. WACC

This lecture introduces the key steps in the APV valuation method, which involves determining the investment's value without leverage, calculating the present value of the interest tax shield, and adding these values to determine the investment's value with leverage. The APV method is compared to the WACC method, highlighting its advantages when firms do not maintain a constant debt-equity ratio. The lecture also covers the Flow-to-Equity method, which calculates the free cash flow available to equity holders, and discusses the impact of default costs on the firm's value and debt issuance costs.