hard · Investment Banking

What is the primary rationale for using the mid-year convention in a DCF analysis?

1. It assumes that free cash flows are received evenly throughout the year rather than in a single lump sum at year-end.
2. It minimizes the impact of the terminal value on the overall enterprise value.
3. It is required by GAAP for all companies that report quarterly financials.
4. It accounts for the fact that capital expenditures usually occur in the middle of the fiscal year.

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