Discount Terminal Value Back to Present
Whichever method you use, terminal value comes out at end of year n. To use it in a DCF you must discount it back to year zero. Forgetting this step is the single most common DCF arithmetic error.
Year-end convention
Mid-year convention
Year-end convention assumes all cash flow in a given year arrives on the last day. Real cash flow arrives roughly uniformly, so practice increasingly adopts mid-year convention: each year's cash flow is discounted as if received at the mid-point. Terminal value at year n is then discounted by (1+WACC) to the power (n minus 0.5).
The 60-to-80-percent EV that quietly does not
When a DCF model accidentally sums the undiscounted terminal value with the discounted explicit-period flows, enterprise value overshoots by (1+WACC) raised to the power n. For a ten-year forecast at 10 percent WACC, that is a factor of 2.59, i.e. enterprise value comes out 159 percent too high. The error is undetectable from the headline number alone; it is caught only by checking that the terminal-value row in the model has an explicit divisor.