I still don't understand intuitively why APV is considered an improvement over the DCF method. Why measuring the debt benefits in dollar terms should lead to higher accuracy?

Question

anonymous · Answer

Yes I have a similar view. Although in text books they say that NPV is superior using an example. If there are two projects A & B, where A has a higher IRR than B and B has a higher NPV, then B is chosen based on value created for shareholders (i.e. higher positive NPV). But where NPV of A is better or equal to B then I feel its worthwhile to look at IRR. 
IRR is also used for evaluating projects and financial decisions in real life. NPV is used to arrive at a value but many financial decisions are taken based on expected rate of return estimated using IRR. 

In realty IRR and NPV work together because the underlying cash flows in either case are the same. Instead of debating on which is better one should use both to get different points of view on the investment.

anonymous · Answer

You are confusing me more :) despite your sincere effort. I am talking about firm valuation using APV vs the regular DCF analysis. what is the relationship of my question with the NPV vs IRR argument?

anonymous · Answer

You are confusing me more :) despite your sincere effort. I am talking about firm valuation using APV vs the regular DCF analysis. what is the relationship of my question with the NPV vs IRR argument?

anonymous · Answer

Sorry for the confusion. Can you explain what is APV?

anonymous · Answer

Who is it that considers APV an improvement? I don't.... See the survey paper I have on valuation on my website.

kiki · Answer

Academics at european universities have the opinion that the APV method is superior. They say it is easier to implement when the firm has a fixed amount of debt because then you can avoid the time varying WACC.