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

Question

Templeton Extended Care Facilities. Inc is considering the acquisition of a chain of cemeteries for S400 million Since the primary asset of this business is real estate. Templeton's nunagemeot has determined that they will be able to borrow rise majority of the money needed to buy the business The current owners base no debt financing but Templeton plans to borrow $300 million and invest only $100 million in equity in the acquisition What weights should Templeton use tn computing the WACC for this acquisition?

Explanation / Answer

Debt financing = 300 million

Equity financing = 100 million

Weight used for debt financing = 300/400 i.e 0.75 or 75%

Weight used for equity financing = 100/400 i.e 0.25 or 25%

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