Peter's Pet Foods has a WACC of 12.5 percent and is considering manufacturing pet toys. Tim's Toys specializes in pet toys and has a WACC of 10.5 percent. What discount rate should Peter's Pet Foods...

Peter's Pet Foods has a WACC of 12.5 percent and is considering manufacturing pet toys. Tim's Toys specializes in pet toys and has a WACC of 10.5 percent. What discount rate should Peter's Pet Foods use to evaluate this investment?

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  10.5 percent because that is appropriate given the risk of the project
  
  


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  The risk-free rate.
  
  


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  A weighted average of 12.5 and 10.5 with the weights based on the proportion in each business
  
  


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  11.5 percent because after investment Peter's will be a combination of the two businesses
  
  


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  12.5 percent because that is the appropriate rate for the company