The following condensed balance sheet for December 31, 2017, comes from the records of Buzz and Associates:

Buzz and Associates is considering the purchase of a new piece of equipment for $30,000. The company does not have enough cash to purchase it outright, so it is considering alternative ways of financing. As management sees it, there are three basic options: (1) issue 3,000 ownership shares for $10 per share, (2) take out a long-term loan (12 percent annual interest) for $30,000 from the bank, or (3) purchase the equipment on open account (must be paid in full in 30 days). Presently Buzz has 12,000 ownership shares outstanding.

REQUIRED:
a. Compute the present current ratio (current assets/current liabilities), the debt/equity ratio (total liabilities/ shareholders€™ equity), and the book value of Buzz€™s outstanding ownership shares: (total assets minus total liabilities divided by number of shares outstanding).
b. Compute the current ratio, debt/equity ratio, and book value per share under each of the three financing alternatives, and express your answers in the following format:

c. Discuss some of the pros and cons associated with each of the three financing options.
d. The chairman of the board of directors stated at a recent board meeting that with $50,000 in Retained Earnings, the company should be able to purchase the $30,000 piece of equipment. Comment on the chairman€™s statement.

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Liabilities and Shareholders' Equity Current liabilities Assets Cash $ 10,000 $ 20,000 Other current assets Property, plant, and equipment Notes payable Contributed capital Retained earnings Total liabilities and shareholders' equity 40,000 20,000 70,000 30,000 50,000 Total assets $120,000 $120,000 Financing Alternative 1. Share issuance Current Ratio Debt/Equity Ratio Book Value per Share 2. Long-term note 3. Open account