Answer: required rate of return on equity.

**Explanation:** **FCFE (Free Cash Flow to Equity)** represents the cash flow available to the company's equity shareholders after all operating expenses, interest expenses, net debt repayments, and reinvestment needs. Since FCFE is the cash flow available to equity holders, it should be discounted at the **required rate of return on equity**. **Key points:** - **FCFE** → Discount at **required return on equity (re)** - **FCFF** → Discount at **WACC** - **Risk-free rate** is too low and doesn't account for equity risk premium - **WACC** is appropriate for firm valuation using FCFF, not equity valuation using FCFE This is a fundamental principle in equity valuation: cash flows to equity holders should be discounted at the cost of equity capital. **Answer: C**

Author: LeetQuiz Editorial Team