Clayton Industries has the following account balances:

Current assets	$	25,000	Current liabilities	$	7,000
Noncurrent assets		76,000	Noncurrent liabilities		55,000
			Stockholders equity		39,000

The company wishes to raise $49,000 in cash and is considering two financing options: Clayton can sell $49,000 of bonds payable, or it can issue additional common stock for $49,000. 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. (Round your answers to 2 decimal places.)

a-2. Compute the debt-to-assets ratio for Claytons management. (Round your answers to 1 decimal place.)

b. Assume that after the funds are invested, EBIT amounts to $14,300. Also assume the company pays $4,700 in dividends or $4,700 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.