hard · Investment Banking valuation-core

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 analyst's exposure to how heavily terminal value is weighted within total enterprise value.
3. It is simply a discounted cash flow modeling convention, not a GAAP or SEC financial reporting mandate for public issuers.
4. It reflects the fact that capital expenditures are typically concentrated in the middle of each fiscal year, not spread evenly.

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