You want to value EVIL Ltd., a listed company active in the advertising industry, using the DCF approach on FCFFs. EVILs corporate bonds were rated BBB at the time they were issued, with a Yield-To-Maturity (YTM) of 9%. In August 2020, BBB bonds trade at a YTM of 2%. EVIL is currently rated BB+, and BB+ rated bonds trade at a credit spread of 2.5 %. Based on the following information, which discount rate would you use in your DCF? Keep all decimals in your intermediate calculations and round the final value.

1. 8.29%. 2. 8.50%. 3. 8.71%. 4. 10.22%. 5. None of these answers is correct.