What distinguishes a levered DCF from an unlevered DCF?

A levered DCF distinguishes itself from an unlevered DCF primarily through its use of levered Free Cash Flow (FCF), which is calculated after debt obligations have been met. This means that in a levered DCF, the cash flows being analyzed are those available to equity holders after all interest payments have been accounted for. Consequently, this approach reflects the company's financial leverage and provides insight into the returns that equity investors can expect.

In contrast, an unlevered DCF focuses on unlevered Free Cash Flow, which represents cash flows available to all capital providers—equity and debt—before interest payments are deducted. This gives a broader perspective on the company's operating performance since it is unaffected by its capital structure.

The other choices reflect inaccuracies regarding how levered and unlevered DCFs operate. Levered DCFs specifically require the cash flow to be after financing costs, while terminal value calculations can be approached differently in each method. Furthermore, both types of DCF do indeed utilize discount rates, albeit different ones suited to their respective cash flow types. Thus, the correct definition focuses correctly on the type of cash flow analyzed in a levered DCF as being levered Free Cash Flow.