Templeton Extended Care Facilities, Inc. is considering the acquisition of a chain of cemeteries for $350 million. Since the primary asset of this business is real estate, Templeton’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 $280 million and invest only $70 million in equity in the acquisition. What weights should Templeton use in computing the WACC for this acquisition? (round to one decimal place)

Well, it seems like Templeton wants to dive into the spooky business of cemeteries. Let's help them calculate the weights they should use in computing the WACC (Weighted Average Cost of Capital) for this acquisition.

To do that, we need to consider the proportions of debt and equity that Templeton plans to use. Templeton will borrow $280 million and invest $70 million in equity, making the total capital structure $350 million.

So, the weight of debt would be the amount of debt divided by the total capital structure: $280 million / $350 million = 0.8 (rounded to one decimal place).

The weight of equity would be the amount of equity divided by the total capital structure: $70 million / $350 million = 0.2 (rounded to one decimal place).

Therefore, Templeton should use a weight of 0.8 for debt and 0.2 for equity when computing the WACC for this acquisition. I just hope their new business doesn't bury them in debt!

To compute the weighted average cost of capital (WACC), Templeton Extended Care Facilities, Inc. needs to determine the weights of debt and equity in the company's capital structure.

In this case, Templeton plans to borrow $280 million and invest $70 million in equity. The total capital structure of the acquisition will be $350 million ($280 million + $70 million).

To find the weights, divide the amount of each component by the total capital structure:

Weight of Debt = Debt / Total Capital Structure
Weight of Equity = Equity / Total Capital Structure

Using the given values:

Weight of Debt = $280 million / $350 million
= 0.8 (rounded to one decimal place)

Weight of Equity = $70 million / $350 million
= 0.2 (rounded to one decimal place)

Templeton should use a weight of 0.8 for debt and 0.2 for equity when calculating the WACC for this acquisition.

To compute the weighted average cost of capital (WACC), Templeton should use the weights of debt and equity in their capital structure. The weight of each component is based on its proportionate contribution to the total capital.

In this case, Templeton plans to borrow $280 million and invest $70 million in equity for the acquisition. Therefore, the weight of debt (Wd) would be calculated by dividing the debt component by the total capital:

Wd = Debt / Total Capital

Wd = $280 million / ($280 million + $70 million)

Wd = $280 million / $350 million

Wd = 0.8

Similarly, the weight of equity (We) would be calculated by dividing the equity component by the total capital:

We = Equity / Total Capital

We = $70 million / ($280 million + $70 million)

We = $70 million / $350 million

We = 0.2

Therefore, Templeton should use the weights of 0.8 for debt and 0.2 for equity in computing the WACC for this acquisition.