The most appropriate discount rate to use when applying a FCFF valuation model is the
A) required rate of return on equity.
B) WACC.
C) risk-free rate.
D) required rate of return on equity or risk-free rate, depending on the debt level of the firm.
E) None of the options are correct.

Question

Quizplus · Accepted Answer

The Weighted Average Cost of Capital (WACC) is the most appropriate discount rate to use when applying a Free Cash Flow to the Firm (FCFF) valuation model because it reflects the overall cost of capital, including both debt and equity, which aligns with the perspective of the FCFF model that values the entire firm.

The Most Appropriate Discount Rate to Use When Applying a FCFF