Winchell Investment Advisors is evaluating the capital structure of Ojai Foods. ? Ojai's balance sheet indicates that the firm has ?$50.11 million in total liabilities. Ojai has only ?$40.45 million in? short- and? long-term debt on its balance sheet. ? However, because interest rates have fallen dramatically since the debt was? issued, Ojai's? short- and? long-term debt has a current market price that is 10 percent over its book value or ?$44.50 million. The book value of? Ojai's common equity is $48.17 million but the market value of the equity is currently ?$99.24 million.
a. What is? Ojai's debt ratio and? interest-bearing debt ratio calculated using book? values?
b. What is? Ojai's debt-to-enterprise-value ratio calculated using the market values of the? firm's debt and equity and assuming excess cash is? zero?
c. If you were trying to describe? Ojai's capital structure to a potential lender? (i.e., a? bank), would you use the? book-value-based debt ratio or the? market-value-based debt-to-enterprise-value? ratio?
a. ?Ojai's debt ratio calculated using book values is %.? ?(Round to one decimal? place.)