Exercise 10-25A Determining the effects of financing alternatives on ratios LO 10-8 Clayton Industries has the following account balances: Current assets Noncurrent assets $ 21,000 85,000 Current liabilities Noncurrent liabilities Stockholders' equity $ 11,000 43,000 52,000 The company wishes to raise $40,000 in cash and is considering two financing options: Clayton can sell $40,000 of bonds payable, or it can issue additional common stock for $40,000. 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. (Round your answers to 2 decimal places.) Current Ratio Currently to 1 If bonds are issued to 1 If stock is issued to 1 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 is issued % b. Assume that after the funds are invested, EBIT amounts to $17,800. Also assume the company pays $4,600 in dividends or $4,600 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