1. (defining capital structure weights) templeton extended care facilities, inc. is considering the acquisition of a chain of cemeteries for $340 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 $310 million and invest only $120 million in equity in the acquisition. What weights should templeton use in computing the WACC for this acquisition? (round to one decimal place).

Question

1.	 (defining capital structure weights) templeton extended care facilities, inc.  is considering the acquisition of a chain of cemeteries for $340 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 $310 million and invest only $120 million in equity in the acquisition.  What weights should templeton use in computing the WACC for this acquisition?  (round to one decimal place).

2.	(individual or component costs of capital) compute the cost of the capital for the firm for the following:

A.	A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 10.8%.  the bonds have a current market value of $1,130 and will mature in 10 years.  The firm’s marginal tax rate is 34%.

B.	A new common stock issue that paid a $1.81 dividend last year.  The firm’s dividends are expected to continue to grow at 7.4% per year forever.  The price of the firm’s common stock is now $27.18.

C.	A preferred stock paying a 8.1% dividend on a $121 par value.

D.	A bond selling to yield 11.9% where the firm’s tax rate is 34%.
(round to two decimal places).

3.	(individual or component costs of capital) your firm is considering a new investment proposal and would like to calculate its weighted average cost of capital.  To help this, compute the cost of capital for the firm for the following:
A.	A bond that has $1,000 par value (face value) and a contract or coupon interest rate of 12.8%.  the bond is currently selling for a price of $1,128 and will mature in 10 years.  The firm tax rate is 34%.

B.	If the firm’s bonds are not frequently traded, how would you go about determining a cost of debt for this company?

C.	A new common stock issue that paid a $1.77 dividend last year.  The par value of the stock is $15, and the firm’s dividends per share have grown at a rate of 8.8% per year.  This growth rate is expected to continue into the foreseeable future.  The roice of this stock is now $28.05.

D.	A preferred stock paying a 9.2% dividend on a $123 par value.  The preferred shares are currently selling for $146.41.

E.	A bond selling to yield 13.7% for the purchaser of the bond.  The borrowing firm faces a tax rate of 34%.  
(round to two decimal places)