Templeton Extended Care Facilities, Inc. is considering the acquisition of a chain of cemeteries for $400 million. Because 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 $300 million and
invest only $100 million in equity in the acquisition. What weights should Templeton
use in computing the WACC for this acquisition

To compute the weighted average cost of capital (WACC) for the acquisition, Templeton needs to determine the appropriate weights for debt and equity. Weighted average cost of capital is the average rate of return a company needs to generate to compensate all of its investors (both creditors and shareholders). The weights represent the proportion of debt and equity in the company's capital structure.

In this case, Templeton plans to borrow $300 million and invest $100 million in equity. Therefore, the total capital structure of the acquisition is $400 million ($300 million debt + $100 million equity).

To calculate the weight of debt:
Weight of Debt = Total Debt / Total Capital
Weight of Debt = $300 million / $400 million
Weight of Debt = 0.75 or 75%

To calculate the weight of equity:
Weight of Equity = Total Equity / Total Capital
Weight of Equity = $100 million / $400 million
Weight of Equity = 0.25 or 25%

So, Templeton should use a weight of 75% for debt and 25% for equity when computing the WACC for this acquisition.