Maloney Industries is an international company which is seeking to raise to raise $60 million to establish a new production plant in the eastern region of Germany. The company usually evaluates its investment using the Net Present Value (NPV) method, but the CFO is not too sure what cost of capital to use in the discounting process for this particular project evaluation as the project would result in significant change in the company's systematic risk level. The CFO has compiled the following information; to Calculate Maloney's weighted average Cost of Capital:

The Current Risk Free Rate is 4.5% and the market return is 10.2%

Maloney Industries' corporate tax rate is 38%

Maloney intends to maintain it target debt to equity ratio of 0.7.

Maloney recently issues a 10 year 6.75% bond which sold at par on the market.

The estimated equity beta of the main German competitor in the same industry as the new proposed plant in the eastern region of Germany is 1.07 and the competitor has a market capitalization of $7,900 million. The competitor pays corporate tax at a rate of 30.5%.

Maloney Industries is considering using a rights offer to finance the $60 million investment in it's new production plant. The company has determined that the ex-rights price would be $52. The current price is $55 per share, and there are 5 million shares outstanding.

Require:

A) Estimated the weighted average cost of capital that the company should use as the discount rate for its proposed investment eastern Germany.

B) What would be the subscription price for the rights offer?

C) Distinguish between weak form, semi-strong form and strong form stock market efficiency, and discuss how the market would react after the rights issue is made public is the market is shown to be semi strong form efficient.