The most appropriate discount rate to use when applying a FCFE valuation model is the
A) required rate of return on equity.
B) WACC.
C) risk-free rate.
D) None of the options are correct.

Question

Quizplus · Accepted Answer

The FCFE (Free Cash Flow to Equity) valuation model calculates the value of equity, so the most appropriate discount rate is the required rate of return on equity. This rate reflects the return that equity investors expect for investing in the company, taking into account the risk of the equity investment.

The Most Appropriate Discount Rate to Use When Applying a FCFE