<p>(Defining capital structure weights) Templeton Extended Care Facilities, Inc.

Question

<p>(Defining capital structure weights) Templeton Extended Care Facilities, Inc. is considering the acquisition of a chain of cemeteries for $410 million. Since the primary asset of this business is real estate, Templeton&#8217;s management has determined that they will be able to borrow the majority of the money needed to buy the business. The current owners have no debt financing but Templeton plans to borrow $300 million and invest only $110 million in equity in the acquisition. What weights should Templeton use in computing the WACC for this acquisition? The appropriate w d weight is _ %</p>

Explanation / Answer

The weight for equity = 110 / 410 = 0.27 The weight for debt = 300 / 410 = 0.73 = wd

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