DCF & WACC
Show the mid-year convention math: what is the PV of a $100 year-1 cash flow at a 10% WACC under year-end vs. mid-year discounting, and roughly how much does mid-year lift the whole DCF?
Model answer
Year-end: PV = 100 / (1.10)^1.0 = $90.91. Mid-year: PV = 100 / (1.10)^0.5 = 100 / 1.0488 = $95.35. The mid-year value is higher because the cash is assumed to arrive six months sooner. Every year's…
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