WACC within a DCF analysis

Hey there - was hoping someone could lend a hand.

It has been some time since I built a DCF model. After looking at the template that I originally learned from, which assumes that the fictitious company pays down a decent chunk of debt each year in the analysis, I am struggling to understand how come the NPV calc for both the first 5 yr stage of the model and the terminal value all use the same WACC?

Shouldn’t we be using a different WACC each year? Is it solely because too many assumptions are needed in order to do this? Or is it b/c we are working towards the target capital structure?

Capital structure is changing…how come the WACC isn’t?

Any and all help would be much appreciated! Please and thanks

The FCFF DCF usually assumes an optimal capital structure which would not necessarily change over time even though debt may be paid down or increased.

Very true - So the fact that we are not changing the WACC as we pay down the debt is b/c we are moving towards the optimal capital structure?

I was also thinking that technically we would also have to forecast Beta in order to properly account for the changes to the cost of equity.

Thanks for your help!