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)A or C depending on the debt level of the firm
E)none of the above

Question

Quizplus · Accepted Answer

FCFE (Free Cash Flow to Equity) valuation model is used to value equity and the discount rate used in this model is the required rate of return on equity. It represents the return that investors expect to earn on their investment and reflects the risk associated with the equity investment.

The Most Appropriate Discount Rate to Use When Applying a FCFE