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The main objective is to check whether traditional DCF model, based on stable rational expectations for cash flows and discount rates really works in an intermediate term—from a quarter to three years. The sample was formed from six major companies of oil and gas sector. The main conclusions are—changes of enterprise value are independent of the changes WACC, free cash flow, and operating cash flows. This may be explained by the impossibility to make durable assessment neither for expected cash flow nor for the discount rate, which in fact means failure of strongly rational models like CAPM or MM. To handle out this implied irrationality the new model proposed, based on the stochastic cost of capital, which follows the model of generalized method of moments by J. Cochrane.

Does Enterprise Value Really Depend on WACC and Free Cash Flow? The Evidence of Irrationality from the Oil and Gas Sector