medium · Investment Banking valuation-core

In the 'Great Debate' over whether to use mid-year convention, which argument is most commonly cited by practitioners against its use?

1. WACC is designed by strict accounting convention to work with year-end discount exponents only, not fractional periods.
2. The IRS explicitly prohibits companies from applying mid-year discounting conventions in preparing tax-basis valuations.
3. It is mathematically impossible to properly calculate a mid-year terminal value using an exit multiple approach in any DCF model.
4. It adds complexity without significantly changing the investment conclusion, and year-end discounting is more conservative.

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