Problem #3 (12 marks) You have been hired as a consultant to help Carbon Solutions Inc. (CS) determine if they should enter a new line of business. The new division would manufacture and sell bicycles made from recycled materials, which has a much higher risk level than the parent company as it is a very competitive market. You have been given the following information on the parent company (CS), its new division, and the market: - CS: =0.7,D/E=1.75, tax rate =30%,RD=7% - Market information: Return on Government of Canada 3- month T-bill =4%, Expected market risk premium =5% CS has identified a pure play company (TREK) to use in its analysis of the new division. - TREK: =1.45,WD=55%,WE=45%, tax rate =40%,RD=8% Determine the appropriate discount rate that CS should use when evaluating projects for its new division. The new division will have the same capital structure, tax rate and cost of debt as CS