Problem:
Green and Red has a cost of equity of 11% and a pre-tax cost of debt of 8.5%. The firm's target weighted average cost of capital is 9% and its tax rate is 35%.
Required:
Question: What is the firm's target debt-equity ratio?
- 62.03%
- 48.29%
- 51.13%
- 55.72%
- 57.55%
Note: Provide support for rationale.