(6) (Calculating capital structure weights)

Winchell Investment Advisors is evaluating the capital structure of Ojai Foods. Ojai's balance sheet indicates that the firm has $51.24 million in total liabilities. Ojai has only $38.52 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 $42.37 million. The book value of Ojai's common equity is $50.19 million but the market value of the equity is currently $101.09 million.

Please Find:

1. Ojai's debt ratio calculated using book values is ____%. (Round to one decimal place.)

2. Ojai's interest-bearing debt ratio calculated using book values is ____%. (Round to one decimal place.)

3. Ojai's debt-to-enterprise-value ratio calculated using the market values is ____% (Round to one decimal place.)

4. 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? (Select the best choice below.)

a.) If I were trying to describe Ojai's capital structure to a potential lender, I would use the book-value-based debt ratio.

b.) If I were trying to describe Ojai's capital structure to a potential lender, I would use the market-value-based debt-to-enterprise-value ratio.

c.) If I were trying to describe Ojai's capital structure to a potential lender, I would use the book-value-based interest-bearing debt ratio.

d.) None of the three ratios would describe Ojai's capital structure to a potential lender.