15

Clayton Industries has the following account balances: 15 Current assets Noncurrent assets $ 16,000 Current liabilities 84,000 Noncurrent liabilities Stockholders' equity $ 12,000 52,000 36,000 0.66 points The company wishes to raise $30,000 in cash and is considering two financing options: Clayton can sell $30,000 of bonds payable, or it can issue additional common stock for $30,000. To help in the decision process, Clayton's management wants to determine the effects of each alternative on its current ratio and debt-to-assets ratio. eBook Required a-1. Compute the current ratio for Clayton's management. (Round your answers to 2 decimal places.) Hint Currently If bonds are issued If stock issued Current Ratio to 1 Ito 1 to 1 References a-2. Compute the debt-to-assets ratio for Clayton's management. (Round your answers to 1 decimal place.) Debt to Assets Ratio % Currently If bonds are issued If stock issued % % b. Assume that after the funds are invested, EBIT amounts to $17,400. Also assume the company pays $3,900 in dividends or $3,900 in interest depending on which source of financing is used. Based on a 40 percent tax rate, determine the amount of the increase in retained earnings that would result under each financing option. Additional Retained Earnings Bonds Stock