n NISM Certifications
XV NISM Series XV
Medium

Which of these is used as the discount rate while calculating Free Cash Flow to Equity (FCFE)?

Practice question from NISM XV Mock Test 1 — bank. The correct answer is highlighted below with a full explanation.

Options

  1. Cost of Equity

    Correct answer

  2. B

    Cost of Debt

  3. C

    Risk Free Rate

  4. D

    Weighted Average Cost of Capital

Why this is the answer

FCFE represents cash flows available to equity shareholders, so it is discounted at the cost of equity. FCFF, which includes debt holders, is discounted at WACC.

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