hard · Investment Banking

In a DCF analysis, why is the 'Mid-Year Convention' used when discounting cash flows?

  1. To reduce the impact of the terminal value on the total enterprise value.
  2. To account for cash flows arriving evenly throughout the year.
  3. It is required under GAAP for all intrinsic valuation models.
  4. To align the DCF with the company's mid-year fiscal reporting.

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