Which factor must be calculated to determine the discounted cash flows effectively?

To effectively determine discounted cash flows, it is essential to calculate the Weighted Average Cost of Capital (WACC). WACC represents the average rate that a company is expected to pay to finance its assets, which is crucial for evaluating investment opportunities and guiding financial decisions.

When calculating discounted cash flows, one of the key components is the discount rate, which should reflect the cost of capital used to finance the project or investment. WACC provides a comprehensive discount rate because it accounts for the cost of equity and the cost of debt, weighted according to the company's capital structure. By using WACC, analysts ensure that the expected return on an investment aligns with the risks associated with it, enabling a more accurate assessment of future cash flows in today's terms.

In contrast, the other options, while related to financial analysis, do not directly provide a necessary factor for calculating discounted cash flows. Expense ratios pertain to operational efficiency, market capitalization reflects the overall value given to a company by the stock market, and the debt-to-equity ratio focuses on capital structure. However, none of these metrics serve as the appropriate basis for determining the discount rate that will be applied to ascertain the present value of future cash flows.