Problem #2 (10 Marks) Sunny Days Corporation is establishing a new division to manufacture and sell outdoor furniture made from recycled plastic. This new division has a much higher risk level than the parent company. The following information is available on the parent company, its new division, and the market: Sunny Days Corporation: B -0.5, D/E = 0.75, tax rate = 30%, Ro = 7% Market information: Return on government 3-month T-bill - 5%, Expected return on the TSX- 10% Sunny Days has identified a pure play company to use in its analysis of the new division. Pure play: B = 1, W. = 40%, W = 60%, tax rate = 40%, R. = 9% Determine the appropriate discount rate that Sunny Days should use when evaluating projects for its new division. The new division will have the same tax rate and cost of debt as Sunny Days