Required return on assets = 16%, cost of debt = 10%; percent of debt = 45% What is the cost of equity? RE = 0.16 + (0.16 - 0.10)*(0.45/0.55) = 0.2091 = 20.91% Suppose instead that the cost of equity is 25%, what is the debt-to-equity ratio? 0.25 = 0.16 + (0.16 - 0.10)*(D/E) D/E = (0.25 - 0.16) / (0.16 - 0.10) = 1.5 Based on this information, what is the percent of equity in the firm? E/V = 1 / 2.5 = 40%

I don't understand how they answered the last question. How is E equal to 1 and V equal to 2.5?