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