What is primarily used as the discount rate for a firm’s overall free cash flow in discounted cash flow (DCF) valuation?

💡 Explanation:

The Weighted Average Cost of Capital (WACC) represents the overall cost of a company's financing, including both equity and debt, weighted by their proportions in the capital structure. Since the Free Cash Flow to Firm (FCFF) is cash flow available to all investors (both debt and equity holders), WACC is the appropriate rate to discount these cash flows back to the present value to determine the company's enterprise value in a DCF valuation. The Cost of Equity (Re), often calculated using the Capital Asset Pricing Model (CAPM), is only the required return for equity holders and is a component of WACC.