Templeton Extended Care Facilities, Inc. is considering the acquisition of a cha

Question

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's management has determined 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 $320 million and invest only $90 million in equity in the acquisition. What weights should Templeton use in computing WACC for the acquisition? The appropriate wd weight is __%. (Round to one decimal place)   

Explanation / Answer

The total investment is of $410 million.

Out of the total investment of $410 million, $320 million is to be financed from debt.

Thus Wd (Weight of Debt) for calculation of WACC = ($320 million / $410 million)

= 0.7805 or 78.05%

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