Understanding Compressed Adjusted Present Value

CAPV—Compressed Adjusted Present Value—is like the finance hack that lets you value a

levered firm without wrestling the WACC every time the debt ratio changes. Instead of recalculating

the cost of equity for every leverage level, CAPV starts with the unlevered value

of the firm and then adds a single, compressed term that captures the present value of

all future tax shields, assuming a constant debt ratio. This matters because in the real world,

debt doesn’t stay fixed—firms refinance, roll over debt, and shift leverage over time—so the

classic APV breaks down. CAPV fixes that by embedding the tax shield directly

into the discount rate, making valuation way more accurate when debt grows