You have been assigned the task of using the corporate, or free cash flow model to estimate KCB Corporation's intrinsic value. The firm's WACC is 10.00%, its end-of-year free cash flow (FCF1) is expected to be $75.0 million, the FCFs are expected to grow at a constant rate of 5.00% a year in the future, the company has $200 million of long-term debt and preferred stock, and it has 30 million shares of common stock outstanding.

Why should the WACC be used as the discount rate in calculating the total firm value? Explain. (7 marks)