Central Systems Desires a Weighted Average Cost of Capital of 12.7

Multiple Choice

Central Systems desires a weighted average cost of capital of 12.7 percent. The firm has an aftertax cost of debt of 4.8 percent and a cost of equity of 15.4 percent. What debt-equity ratio is needed for the firm to achieve its targeted weighted average cost of capital?

A) .37
B) .42
C) .56
D) .34
E) .44