16. Prefened shares] Texaco's December 31. 1999 balance sheet shows $300 million of preferied shares outstanding The characteristics of these shares are reported in Note 13.

a. State the appropriate classification for the preferred shares (debt or equity) and justify your choice

b. On page 26 of its 1999 annual report, Texaco reports "key fi- nancial indicators," including Total debt/total capital 37.5% Show how this ratio was arrived at and recalculate the ratio after making any appropriate adjustments