Which model uses the firm's weighted average cost of capital to value a company?

The correct choice is the Free Cash Flow Valuation Model because it directly incorporates the firm's weighted average cost of capital (WACC) when calculating the present value of future cash flows. In this model, free cash flows, which represent the cash generated by the business that is available to be distributed to investors (both debt and equity holders), are projected for future periods. These cash flows are then discounted back to their present value using the WACC, reflecting the overall risk and opportunity cost associated with the investment.

This approach effectively captures the cost of capital and ensures that the valuation considers the risk associated with the firm's capital structure, providing a comprehensive analysis of the company's value based on its expected performance. The use of WACC in this model is crucial because it serves as the appropriate discount rate that accounts for the weighted costs of both equity and debt financing.

Other options, such as the Discounted Cash Flow Valuation Model, may seem similar but may not specify the use of WACC as the central theme, focusing instead on cash flows or other performance metrics without the explicit integration of WACC into their structure. The Net Present Value Model generally evaluates specific projects and investments rather than overall company valuation using WACC, while the Return on Investment Calculation primarily utilizes profit