Clayton Industries has the following account balances:
| | | | | | |
| Current assets | $ | 25,000 | Current liabilities | $ | 15,000 | |
| Noncurrent assets | | 79,000 | Noncurrent liabilities | | 46,000 | |
| | | Stockholders’ equity | | 43,000 | |
|
The company wishes to raise $41,000 in cash and is considering twofinancing options: Clayton can sell $41,000 of bonds payable, or itcan issue additional common stock for $41,000. To help in thedecision process, Clayton’s management wants to determine theeffects of each alternative on its current ratio and debt-to-assetsratio.
Compute the current ratio for Clayton’s management currently, ifbonds are issued, and if stock is issued. (Round youranswers to 2 decimal places.)
  Compute the debt-to-assets ratio for Clayton’smanagement. (Round your answers to 1 decimalplace.)
Assume that after the funds are invested, EBIT amounts to$17,200. Also assume the company pays $3,400 in dividends or $3,400in interest depending on which source of financing is used. Basedon a 40 percent tax rate, determine the amount of the increase inretained earnings that would result under each financingoption.
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