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Winchell Investment Advisors is evaluating the capital structure of Ojai Foods. ?Ojai's balance sheet indicates that the firm has ?$49.5849.58 million in total liabilities. Ojai has only ?$40.31 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 ?$44.34 million. The book value of? Ojai's common equity is ?$50.19 million but the market value of the equity is currently ?$99.85 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?
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