medium · Investment Banking accounting
In a DCF analysis, what is the primary benefit of using the Mid-Year Convention?
- It assumes cash flows arrive evenly throughout the year, preventing the underestimation of present value.
- It smooths WACC by spreading the cost of capital assumption evenly over each twelve-month year.
- It boosts the annual tax shield because the model assumes corporate taxes are all remitted on July 1st each year.
- It makes calculating the Terminal Value simpler by removing the need for a separate mid-year adjustment step here.
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