Templeton Extended Care Facilities, Inc. is considering the acquisition of a chain of cemeteries owned by the Rosewood Corporation for $410 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 Rosewood Corporation has no debt financing, but Templeton plans to borrow $110 million and invest only $300 million in equity in the acquisition. What weights should Templeton use for debt and equity in computing the WACC for this acquisition?

Debt weight = 35.7%, equity weight = 64.3%

Debt weight = 21.1%, equity weight = 78.9%

Debt weight = 26.8%, equity weight = 73.2%

Debt weight = 31.4%, equity weight = 68.6%

Falon Corporation is issuing new common stock at a market price of $27.17. Dividends last year were $1.36 and are expected to grow at an annual rate of 7.8 percent forever. What is Falon's cost of common equity capital (assuming no flotation cost)?

14.70%

13.20%

11.80%

12.10%