It's undervaluing your own work if someone else asks you to work for free vs. your offering to work for free.
Too many industries have taken advantage of free work, and that seems to be growing every year. Be it unpaid internships, work on spec, etc.
I've been an off and on freelance graphic designer for two decades now. I've done work for large-scale real estate companies (good clients) to mom and pop shops (~30% good clients) and everything inbetween. Every designer I know has been propositioned for free work. "We offer great exposure!", "We'll send you all our work when me hit it big!","We don't have much money, but we need a modest ($10,000 custom-built CMS) website and we'll send all our business friends your way!"
Everyone thinks their business is going to make millions, and 99% of the time, taking their business on spec or for free will drive you to the edge of madness and make you hate humanity. People who request free work are inherently selfish and you'll end up with a client who has zero respect for your work, time or life.