Effect of mid-year convention on terminal value
Hi guys,
For the question: what is the effect of using mid-year convention on terminal value? This is my answer below, I was wondering if you guys could critique my thinking.
For Exit Multiples Method - no effect because you assume company is sold off at the end of the year anyway, so terminal value has to be discounted by an end-of-the-year factor, even if previous cash flows were discounted using mid-year convention
For Gordon Growth Method - again no effect because formula is cash flow x (1+g)/(WACC-g), the factor doesn't matter when it's infinitely large
The answer in the BIWS guide doesn't seem coherent which is why I am asking....
Hi TheZhanMan, any of these threads helpful:
You're welcome.
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