When should Equity Value be used with Free Cash Flow multiples?

The correct choice is that Equity Value should be used with Free Cash Flow to Equity (FCFE) multiples. This is because FCFE represents the cash available to equity holders after all expenses, reinvestments, and debt repayments have been taken into account. Therefore, when valuing a company using FCFE, or Free Cash Flow to Equity multiples, it is appropriate to compare this cash flow metric to the company's Equity Value, as both relate specifically to the returns available to equity investors.

On the other hand, Free Cash Flow to the Firm (FCFF) represents the cash generated by the company's operations that is available to all capital providers, both equity and debt holders. When using FCFF, it is standard practice to use Enterprise Value, which reflects the entire value of the firm, rather than just the equity stake, because it takes into account the financing structure of the business.

In summary, the correct approach emphasizes the alignment between the type of cash flow and the value measurement being used—Equity Value aligns with FCFE, while FCFF corresponds with Enterprise Value.