Fat Cat, Inc. (FCI) is a chain of pet supply retail stores. Clumpy Sand, LLC is a kitty litter manufacturer and a supplier to FCI. FCI has an equity beta of 1.38 and is 64% equity-financed (wE). Clumpy Sand has an equity beta of 1.95 and a debt-equity ratio of 0.31. The risk-free rate of return is 3.5 percent and the market risk premium is 8 percent. What discount rate should FCI use as its cost of equity if it considers a project that involves the manufacturing of kitty litter? Assume taxes are 5% and that FCI will maintain its current capital structure for its new kitty litter division.