I came across the APV valuation model for the first time in Mckinsey’s valuation book, too. Apparently it’s THE model to use for companies with a capital structure that is likely to change. Is this really the model used by equity analysts in this type of situation?
Sorry about my zillion questions regarding the practical application of concepts within this book - just trying to sort out what’s pure theory and what’s actually done in real life!
I’m nit familiar with (or maybe just dont remember) APV, but what’s actually done in real life is to find shortcuts to implementing financial theory (so as not to take forever calculating value) and then say “it’s just academic theory” to dismiss the parts you don’t feel like dealing with. The theory has enough gaps and difficulties to evaluate that you can mix and match this technique to your preferences. You basically say how rigorous the parts you do are and then comment on how unnecessary the parts you don’t do are, then say “normally it’s 3/30, but since I knew your mother when she spent a weekend at my fraternity in college, I’ll give you a special rate of 2/25.”