In calculating NPV using the flow-to-equity approach the discount rate is the:

Question

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The flow-to-equity approach calculates NPV by discounting cash flows to equity using the cost of equity for the levered firm. This is because the cash flows are received only by the equity holders, and the cost of equity reflects the required return for equity investors. The all-equity cost of capital, weighted average cost of capital, and all-equity cost of capital plus the weighted average cost of debt are not appropriate discount rates for the flow-to-equity approach.

In Calculating NPV Using the Flow-To-Equity Approach the Discount Rate