Module VI· DCF Model BuildIntermediate
Question

How do you model mid-year convention in a DCF?

Answer

Mid-year convention assumes cash flows are received evenly through the year rather than at year-end. Discount factor is 1 / (1 + WACC)^(year - 0.5). This increases present value compared with year-end discounting. Terminal value is still usually discounted from the end of the final forecast year unless specifically adjusted.