(Defining capital structure weights) Templeton Extended Care Facilities, Inc. is considering the acquisition of a chain of cemeteries owned by the Rosewood Corporation for $370million. 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 thebusiness. The Rosewood Corporation has no debt financing, but Templeton plans to borrow $90 million and invest only $280 million in equity in the acquisition. What weights shouldTempleton use for debt and equity in computing the WACC for this acquisition?....The appropriate weight of debt, w, is%. (Round to one decimal place.)

The weight of debt can be calculated as total debt value divided by total capital structure. The weight of equity can be calculated as total equity value divided by total capital structure.Total Capital Structure =$ 370 MillionWeight of Debt = Value of Debt/Total Capital Structure ×100= $ 90 Million/$ 370 Million×100= 24.3%Weight of Equity = Value of Equity/ Total Capital Structure×100= $ 280 Million / $ 370 Million×100= 75.7% Appropriate Weight of Debt = 24.3% Appropriate Weight of Equity = 75.7%

Answered: (Defining capital structure weights)…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Management of Braden Boats, Inc. is considering an expansion in the firm’s product line that requires the purchase of an additional $162,000 in equipment with installation costs of $19,000 and removal expenses of $2,000 (Note: the removal expenses are considered terminal cash flows and not associated with the installation of the new equipment). The equipment and installation costs will be depreciated over five years using straight-line depreciation. The expansion is expected to increase earnings before depreciation and taxes as follows: Years 1 and 2 Years 3 and 4 Year 5 $ 80,000 $ 60,000 $ 50,000 The firm’s income tax rate is 30 percent and the weighted-average cost of capital is 18 percent. Based on the net present value method of capital budgeting, should management undertake this project? Use Appendix B to answer the question. Use a minus sign to enter a negative value, if any. Round your answer to the nearest dollar. NPV: $ The firm make the investment.
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F1 please help.......
Velcro Saddles is contemplating the acquisition of Skiers' Airbags Incorporated The values of the two companies as separate entities are $30 million and $15 million, respectively. Velcro Saddles estimates that by combining the two companies, it will reduce marketing and administrative costs by $550,000 per year in perpetuity. Velcro Saddles considers offering Skiers' shareholders a 50% holding in Velcro Saddles. The opportunity cost of capital is 10%. a. What is the value of the stock in the merged company held by the original Skiers' shareholders? Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. b. What is the cost of the stock alternative? Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. c. What is the merger's NPV under the stock offer? Note: A negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in millions rounded…
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