stockholders' equity

$22,000$

The company wishes to raise $$38,000$ in cash and is considering two financing options: Clayton can sell $$38,000$ of bonds payable, or

it can issue additional common stock for $$38,000.$ 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.

Note: Round your answers to $2$ decimal places. a$-2.$ Compute the debt$-$to$-$assets ratio for Clayton's management.

Note: Round your answers to $1$ decimal place.

b$.$ Assume that after the funds are invested, EBIT amounts to $$19,200.$ Also assume the company pays $$3,400$ in dividends or $$3,400$

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.