We look here at the mid year adjustment when calculating our terminal value using the growth perpetuity model We've got a time line at the bottom here. Zero implies the valuation data (that's today) And then you've got one year from today, two years from today, three years from today etc We know that when we're looking at our cash flow from year one That cash flow is actually happening at the half year point, on average the cash flows happen evenly throughout the year And on average some of them happen at the start of the year, the end of the year. The average is the mid year I thus have to use a discount factor of one over one plus the WACC To the power of the time period of the cash flow, 0.5 Now the same happens for our free cash flows from years 2, 3 and 4 But what happens in year 5 to the free cash flow and the terminal value? That's the important bit, the terminal value Well both of them will also happen at the half year point The free cash flow occurring at the half year point, that feels okay (we did that in all of the previous years) But why the terminal value? Well the terminal value calculation using growth perpetuity implies that cash flows continue falling in the middle of the year for eternity and beyond If you think about what the terminal value using the growth perpetuity calculation is It's your free cash flow at year 4.5 times one plus G Divided by WACC minus G So if I put free cash flow 4.5 in (that was a half year cash flow going in) That means that I must be getting my terminal value out at the half year point as well So when we do our discount factor, we discount the terminal value using one over one plus WACC to the power of 4.5 Do be careful though, this is the terminal value using the growing perpetuity method, not the multiple method