Damodaran on Valuation_ Security Analysis for Investment and Corporate Finance ( PDFDrive )

Market value of equity $ 300.15 million

–Value of options outstanding $ 14.31 million

Value of equity in common stock$ 285.84 million

Value of equity per share $ 0.32

Onelimitationofthisapproachisthatitdoesnotconsiderthe
factthatequityhaslimitedliability.Inotherwords,ifdistress
occursandthevalueoftheoperatingassetsislessthanthe
debtoutstanding(asisinevitable),equityinvestorswillget
nothing from their investment but will not be required to
make up the difference.We can estimate a more realistic
valueofequitybytakingaweightedaverageofequityper
share:

One way to read this difference is to consider the first
estimateofvalue($0.32)asthevaluewithoutlimitedliability
and the second estimate ($0.75) as the value to equity
investors with limited liability.

Adjusted Present Value (APV)

Intheadjustedpresentvalue(APV)approach,describedmore
fully in Chapter 6, we begin with the value of the firm
withoutdebt.Asweadddebttothefirm,weconsiderthenet
effectonvaluebyconsideringboththebenefitsandthecosts
ofborrowing.Todothis,weassumethattheprimarybenefit
ofborrowingisataxbenefitandthatthemostsignificantcost
ofborrowingistheaddedriskofbankruptcy.Withdistressed
firms,theadvantageofseparating thevalueimpactofdebt