(DEFINING CAPITAL STRUCTURE WEIGHTS) extreme extended care facilities, Inc. is c

Question

(DEFINING CAPITAL STRUCTURE WEIGHTS) extreme extended care facilities, Inc. is considering the acquisition of a chain of cemeteries for $380 million. Since the primary asset of this business is real estate, extreme extended care 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 extreme extended care plans to borrow $290 million and invest only $90 million in equity in the acquisition.What weights should extreme extended care use in computing the WACC for this acquisition? what is the appropriate w/cs weight ?(round to one decimal place)

Explanation / Answer

What weights should extreme extended care use in computing the WACC for this acquisition? for equity = 90/380 = 0.237 or 23.7% for debt = 290/380 = 0.763 or 76.3% the above stated weights are used

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