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Clayton Industries has the following account balances: Current assets $ 29,000 Current liabilities $ 6,000 Noncurrent assets 80,000 Noncurrent liabilities 46,000 Stockholders equity 57,000 The
Clayton Industries has the following account balances:
Current assets | $ | 29,000 | Current liabilities | $ | 6,000 | ||
Noncurrent assets | 80,000 | Noncurrent liabilities | 46,000 | ||||
Stockholders equity | 57,000 | ||||||
The company wishes to raise $46,000 in cash and is considering two financing options: Clayton can sell $46,000 of bonds payable, or it can issue additional common stock for $46,000. To help in the decision process, Claytons management wants to determine the effects of each alternative on its current ratio and debt-to-assets ratio.'
Required a-1. Compute the current ratio for Clayton's management. (Round your answers to 2 decimal places.) Answer is complete but not entirely correct. Currently If bonds are issued If stock is issued Current Ratio 4.83 to 1 1.44 X to 1 12.50 to 1 | a-2. Compute the debt-to-assets ratio for Clayton's management. (Round your answers to 1 decimal place.) & Answer is complete but not entirely correct. Currently If bonds are issued If stock is issued Debt to Assets Ratio 48.0 X % 63.0 X % 34.0 X b. Assume that after the funds are invested, EBIT amounts to $14,100. Also assume the company pays $4,000 in dividends or $4,000 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. Answer is complete but not entirely correct. Additional Retained Earnings 6,060 6,060 X $ Bonds StockStep by Step Solution
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