A NEW WAY OF AUDITING – AUDIT IN KNOWLEADGE BASED ...

Annals of the University “Constantin Brâncuşi”of Tg-Jiu, No. 1/2008, Volume 3,
ISSN: 1842-4856
It is assumed that the n projects do not exclude each other. The value of a firm is thus
equal to the sum of the net present values of the different investments it manages. This
property is very interesting, because it simplifies the process of choosing investments.
When elaborating investment budgets, increasing the value of the firm for the existing
stock-holders at the time of the drafting of these budgets is equal to sum of the present net
values of all of the accepted projects.
This description of the process is a rather simplified one. Both the financial analysts
and the investors assume that the firms will identify and accept projects whose present net
value is a positive one, and the exchange rate of the stock on the market reflects those
assumptions. In conclusion, the stock exchange rate is very "sensitive" to the announcements
of the firms of getting involved in certain projects, only if these projects are true surprises,
meaning if they were not already expected to happen. In this respect, we can consider the
value of a firm as having two components:
♦ the value of the existing actives, owned by the firm;
♦ the value of the "growth opportunities ", or of projects with a positive net present
value.
The real-estate analysts and the investors analyze firms based upon a series of actives
which bring in profit, plus a series of growth opportunities which will come into play in the
future, if and only if the firm can generate projects with a positive net present value within the
budgeting process of the capital.
Applying the method in this way takes place only if the projects are entirely financed by
their own capital.
If the projects are financed both with personal funds and with borrowed ones, three
methods can be used (variants of the net present value):
• adjusted net present value;
• cash-flow for the stockholders method;
• average moderated cost of the capital method.
1. The method of the adjusted net present value (ANPV), according to which the value of
a mixed financing project, meaning from equity and debt, is greater than the value of a similar
project financed entirely from equity, with the value of the side effects of the debt.
The adjusted net present value is determined as a sum of the net present value (NPV) and
of the tax economy related to the loan (RV), as follows:
n
FLCi
ANPV = NPV + RV = ∑ - I + RV
i = 1 ( 1 + r )
i
o
where:
FLCi - annual cash flows for investments financed from equity;
ro - cost rate of the equity.
Consequently, when determining the adjusted net present value the secondary effects
generated by the loan are also taken into consideration, which are the following:
- the fiscal economy relative to the debt. A perpetual loan generates an economy of profit
tax equal to Tx D (where: D – the market value of the loan), a fact demonstrated by
Modigliani and Miller when they developed the theory of the value of the enterprise;
- issuance cost linked to the new financial titles, respectively the commissions paid to the
banks participating in the process of placing these titles o the market, a cost which has as an
effect the diminishing of the cashed value;
- bankruptcy risk, often associated with debt, whose present cost diminishes the value of
the tax economy related with the deductibility of the interest and, implicitly, the value of the
indebted firm;
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