From a practical matter, you should use a cost of capital that is constant over time in Strategic Finance. In other words, the cost of capital for each forecast period should be the same as the long-term cost of capital. Think of this cost of capital as being a "yield to maturity" concept. The alternative is to forecast a "term structure". Except in very special situations, the value of attempting these forecasts is minimal. Another factor to consider is that the first few years of expected cash flows only contribute a small fraction of the firm's total value, and that is when most of the potential capital structure changes occur. Consequently, even if you could estimate these changes, it would not change the firm's calculated value.
Analysts occasionally claim, for a variety of reasons, that the cost of capital for a company changes over time and they want to change the cost of capital used in future periods. Here are two frequently cited reasons given for wanting to change the cost of capital, with the rationale for why the rate should remain constant:
Claim: "Interest rates are changing in the future, so our cost of capital should also be changing."
Response: Long-Term interest rates incorporate the market's expectations of average future interest rates. Although future interest rates change, people cannot consistently outguess the real market changes.
Claim: "Although I feel reasonably confident about my forecast for next year, I'm less certain about the forecasts five years from now. Therefore I should use a higher cost of capital in later periods to discount those less certain cash flows."
Response: The discounting approach, in which cash flows are discounted by 1 divided by (1+K)n, compounds the risk and reflects the assumption that the further into the future you project, the riskier the estimates are.