Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Clayton Industries has the following account balances. Current assets $ 19,000 Current liabilities $ 10,000 Noncurrent assets 77,000 Noncurrent liabilities 58,000 Stockholders' equity 28,000 The

image text in transcribed
image text in transcribed
image text in transcribed
Clayton Industries has the following account balances. Current assets $ 19,000 Current liabilities $ 10,000 Noncurrent assets 77,000 Noncurrent liabilities 58,000 Stockholders' equity 28,000 The company wishes to raise $46,000 in cash and is considering two financing options: Clayton can sell $46,000 of bonds payable it can issue additional common stock for $46,000. 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. Required a-1. Compute the current ratio for Clayton's management a-2. Compute the debt-to-assets ratio for Clayton's management b. Assume that after the funds are invested, EBIT amounts to $14,800. Also assume the company pays $3,800 in dividends or $3,80 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 Complete this question by entering your answers in the tabs below. Reg A1 Reg A2 Reg B Compute the current ratio for Clayton's management. (Round your answers to 2 decimal places.) Currently If bonds are issued If stock is issued Current Ratio to 1 to 1 to 1 Complete this question by entering your answers in the tabs below. Req A1 pleg A2 Req B Compute the debt-to-assets ratio for Clayton's management. (Round your percentage answers to Currently If bonds are issued If stock is issued Debt to Assets Ratio % % % Assume that after the funds are invested, EBIT amounts to $14,800. Also assume the company pays $3,800 in dividends or $3,800 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

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial And Managerial Accounting

Authors: Carl S. Warren, Jefferson P. Jones, William B. Tayler

15th Edition

1337902667, 9781337902663

More Books

Students also viewed these Accounting questions