How does the terminal value calculation change when we use the mid-year convention?

When you’re discounting the terminal value back to the present value, you use different numbers for the discount period depending on whether you’re using the Multiples Method or Gordon Growth Method:

• Multiples Method: You add 0.5 to the final year discount number to reflect the fact that you’re assuming the company gets sold at the end of the year.

• Gordon Growth Method: You use the final year discount number as is, because you’re assuming the cash flows grow into perpetuity and that they are still received throughout the year rather than just at the end.