Problem 13-20 Flotation Costs

Goodbye, Inc., recently issued new securities to finance a new TV show. The project cost $3 million, and the company paid $171,000 in flotation costs. In addition, the equity issued had a flotation cost of 8 percent of the amount raised, whereas the debt issued had a flotation cost of 2 percent of the amount raised.

Required: If Goodbye issued new securities in the same proportion as its target capital structure, what is the company's target debt-equity ratio?