Wham-O makes Frisbees, Hacky Sacks, and Yo-Yos. Wham-O is considering purchasing Burghardt Sporting Goods in Brookfield and Fox Point. Wham-O's WACC is 15%. But it thinks that the sporting goods business could have different risks than a toy firm. To evaluate the NPV of Burghardt Sporting Goods, it needs to pick a discount rate. Wham-O should use the risk free rate for evaluating the acquisition of Burghardt. Wham-O should examine the cost of equity financing at Dick's Sporting Goods and use that firm's cost of equity financing as a Pure Play It is not possible to discount the cash flows of the Burghardt's Sporting Goods. Since Wham-O is bigger than Burghardt, it should use 15% as the WACC for NPV calculation 19