Worked example — TechCo Inc: you are modeling the DCF as of a June 30 valuation date. How do you adjust the discounting?

From June 30 (the valuation date) to the end of forecast Year 1 is 6 months. The first cash flow is generated at the midpoint of the stub period (September) → discount factor 1/(1+WACC)^0.25 for Year 1 (mid-stub). Later years: offset by +0.5 from the stub end (0.5) — Year 2 (mid-year) = 1.0, Year 3 = 2.0, Year 4 = 3.0, Year 5 = 4.0. Terminal Value at Year 5 = 4.5 years (end-of-year) or 4.0 years (mid-year) after the valuation date.

The Year 1 stub FCF must be reduced pro rata (FCF × 6/12). A classic trap: forgetting to scale the stub FCF.