Problem:
Phil's Carvings, Inc. wants to have a weighted average cost of capital of 6.5 percent. The firm has an aftertax cost of debt of 4.4 percent and a cost of equity of 8.8 percent.
Required:
Question: What debt-equity ratio is needed for the firm to achieve their targeted weighted average cost of capital?
A) 2.10
B) 1.10
C) 0.91
D) 0.55
E) 1.91
Note: Please show how you came up with the solution.