Explanation:

When valuing a firm's equity using free cash flow models:

• FCFE (Free Cash Flow to Equity) should be discounted by the required rate of return on equity (re)
• FCFF (Free Cash Flow to Firm) should be discounted by the WACC (Weighted Average Cost of Capital)

The analyst is incorrectly matching FCFE with WACC. FCFE represents cash flows available to equity holders after all expenses, reinvestment needs, and debt financing, so it should be discounted at the cost of equity, not WACC.

Correct approach:

• To value equity using FCFE: Discount FCFE at required return on equity (re)
• To value the entire firm using FCFF: Discount FCFF at WACC

Answer: B