Clayton Industries has the following account balances:

Current assets	$	24,000	Current liabilities	$	6,000
Noncurrent assets		82,000	Noncurrent liabilities		40,000
			Stockholders equity		60,000

The company wishes to raise $37,000 in cash and is considering two financing options: Clayton can sell $37,000 of bonds payable, or it can issue additional common stock for $37,000. 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 Claytons management currently, if bonds are issued, if stock is issued.

a-2. Compute the debt-to-assets ratio for Claytons management currently, if bonds are issued, if stock is issued.

Assume that after the funds are invested, EBIT amounts to $13,100. Also assume the company pays $4,400 in dividends or $4,400 in interest depending on which source of financing is used. Based on a 30 percent tax rate, determine the amount of the increase in retained earnings that would result under each financing option.(bonds, stocks)