medium · Investment Banking

In a DCF analysis, what is the primary benefit of using the Mid-Year Convention?

1. It assumes cash flows arrive evenly throughout the year, preventing the underestimation of present value.
2. It reduces the WACC by averaging the cost of capital over 12 months.
3. It increases the tax shield by assuming taxes are paid on July 1st.
4. It simplifies the calculation of the Terminal Value.

Sign up free to see the explanation and track your rank →