It is common practice to use a single WACC to discount cash flows in a DCF model. This assumes that the debt and equity weights remain the same throughout the forecast period (and often into perpetuity). Is this technically correct?

Using the same debt and equity weights to estimate WACC in a DCF valuation model implies the same discount rate. This is not technically correct because firms will repay debt or have more debt or increase equity, etc., causing the debt to equity to change. Besides, as firms move from one life cycle stage to another, their debt to equity mix will change given changes in funding opportunities, cashflows, need for capital, etc. Therefore, it is best to reflect that change in debt and equity weights in your DCF.

Examples of the change in debt and equity weights include firms that start off with very little leverage (young firms) and have more access to debt as they mature or mature firms taken private with an LBO starting with a lot of debt and moving to a normal level of debt to equity in their industry.

For examples of different discount rates being applied each year, see Prof. Damodaran’s valuation models on Apple or Amazon. Look in row 12 of the valuation output tab in each of these models.