An All-Equity Firm Has a Cost of Capital of 12

Multiple Choice

An all-equity firm has a cost of capital of 12.8 percent and a tax rate of 23 percent.At the firm's target debt-equity ratio,the pretax cost of debt is 7.35 percent and the cost of equity is 15.07 percent.What is the target debt-equity ratio?

A) .67
B) .49
C) .51
D) .61
E) .54