Discount Rate in Free Cash Flow Valuation

Easy Equity Valuation Techniques Free Cash Flow Models

When using a Free Cash Flow (FCF) model for equity valuation, analysts often project future free cash flows and then discount them back to their present value. The choice of discount rate is critical to this process. Which of the following is the most appropriate discount rate to use in a Free Cash Flow to the Firm (FCFF) valuation?

Cost of equity