15–3. (Calculating capital structure weights) (Related to Checkpoint 15.1 on page 502) Winchell Investment Advisors is evaluating the capital structure of Ojai Foods. Ojai's balance sheet indicates...

Extracted text: 15–3. (Calculating capital structure weights) (Related to Checkpoint 15.1 on page 502) Winchell Investment Advisors is evaluating the capital structure of Ojai Foods. Ojai's balance sheet indicates that the firm has $50 million in total liabilities. Ojai has only $40 million in short- and long-term debt on its balance sheet. However, because inter- est 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 million. The book value of Ojai's common equity is $50 million, but its market value is cur- rently $100 million. a. What are 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? Why?