They’re both discount rates—but they apply to very different cash flows.

• WACC is for free cash flow to the firm.
• Cost of Equity is for free cash flow to equity.

Using the wrong one? You’re mismatching risk and return—and that throws off the valuation.

Takeaway: Always align the rate with the income stream. It’s a common but costly error.

Check out our article and video on this topic!