14–1. (Defining capital structure weights) Templeton Extended Care Facilities, Inc. is considering the acquisition of a chain of cemeteries for $400 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 $300 million and invest only $100 million in equity in the acquisition. What weights should Templeton use in computing the WACC for this acquisition?
Templeton extended care facilities, inc is considering the acquisition of a chain of cemeteries for $ 400 million. Sice tehe primary asset of this business is real estate, Templetons 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 QUESTION
Define captital structure weights)Templeton extended care facilities, inc., is considering the acquisition of a chain of cemeteries for $400 million. Since the primary asset of this business is real estate, Templetons management has determined that they will be able to borrow the majority of the money needed to buy a 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
5. (Defining capital structure weights) Templeton Extended Care Facilitie
To compute the weighted average cost of capital (WACC), you need to determine the weights of equity and debt in the capital structure of Templeton Extended Care Facilities, Inc.
In this scenario, Templeton plans to borrow $300 million and invest $100 million in equity. Therefore, the capital structure weights can be calculated as follows:
Debt Weight = Borrowed Debt / Total Capital
Debt Weight = $300 million / ($300 million + $100 million)
Debt Weight = $300 million / $400 million
Debt Weight = 0.75 or 75%
Equity Weight = Equity Investment / Total Capital
Equity Weight = $100 million / ($300 million + $100 million)
Equity Weight = $100 million / $400 million
Equity Weight = 0.25 or 25%
Therefore, Templeton should use a debt weight of 75% and an equity weight of 25% when computing the WACC for the acquisition.