ABC Corp., a furniture manufacturer, has decided to become a player in the textile industry. ABC Corp. has identified a pure-play company, Textor Inc., with the following characteristics: BE = 1,2 Debt = $10 million of $1,000 bonds maturing in two years with an 10,0% coupon (interest paid semiannually) and a present yield to maturity of 9,0% Equity = 2 million common shares outstanding; yesterday's close was 35.5/8 Tax rate = 20% If the risk-free rate is 5% and the expected return on the market is 10%, what discount rate should ABC Corp. use to value its new investment ?