Targeted weighted average cost of capital

Question

Problem:

Central Systems, Inc. desires a weighted average cost of capital of 8 percent. Assume that there are no taxes, the firm has a cost of debt of 5 percent and a cost of equity of 10 percent.

Required:

Question: What debt-equity ratio is needed for the firm to achieve its targeted weighted average cost of capital?

• .50
• .57
• .77
• .84
• .67

Note: Show all workings.