Total 1,050 The ordinary shares of KU Co have a nominal value of 50 cents per share and are currently trading on the stock market on an ex dividend basis at 5.85 per share. KU Co has an equity beta of 1.15. The loan notes have a nominal value of 100 and are currently trading on the stock market on an ex interest basis at 103.50 per loan. The interest on the on the loan notes is 6% per year before tax and they will be redeemed in six years' time at a 6% premium to their nominal value. The risk-free rate of return is 4% per year and the equity risk premium is 6% per year. KU Co pays corporation tax at an annual rate of 25% per year. (a) Calculate the market value weighted average cost of capital and the book value weighted average cost of capital of KU Co, and comment briefly on any difference between the two values. (10 marks) (b) Discuss the factors to be considered by KU Co in choosing to raise funds through rights issue. (5 marks) Total 1,050 The ordinary shares of KU Co have a nominal value of 50 cents per share and are currently trading on the stock market on an ex dividend basis at 5.85 per share. KU Co has an equity beta of 1.15. The loan notes have a nominal value of 100 and are currently trading on the stock market on an ex interest basis at 103.50 per loan. The interest on the on the loan notes is 6% per year before tax and they will be redeemed in six years' time at a 6% premium to their nominal value. The risk-free rate of return is 4% per year and the equity risk premium is 6% per year. KU Co pays corporation tax at an annual rate of 25% per year. (a) Calculate the market value weighted average cost of capital and the book value weighted average cost of capital of KU Co, and comment briefly on any difference between the two values. (10 marks) (b) Discuss the factors to be considered by KU Co in choosing to raise funds through rights issue