Solved: What is the firms target debt-equity ratio, Accounting Basics

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What is the firms target debt-equity ratio

Problem:

Firm Y has a cost of equity of 16.5 percent and a pre-tax cost of debt of 7.4 percent. The firm's target weighted average cost of capital is 11.5 percent and its tax rate is 34 percent. What is the firm's target debt-equity ratio?

1. .58
2. .62
3. .67
4. .71
5. .76

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Accounting Basics: What is the firms target debt-equity ratio

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