Reference no: EM132495559
Clayton Industries has the following account balances:
Current assets $27,000
Current liabilities $ 9,000
Noncurrent assets 81,000
Noncurrent liabilities 44,000
Stockholders' equity 55,000
The company wishes to raise $37,000 in cash and is considering two ?nancing options:
- Clayton can sell $37,000 of bonds payable, or it can issue additional common stock for $37,000.
- 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
Question a-1. Compute the current ratio for Clayton's management. (Round your answers to 2 decimal places.) Currently If bonds are issued If stock is issued
Question a-2. Compute the debt-to-assets ratio for Clayton‘s management. (Round your answers to 1 decimal place.) Currently - % If bonds are issued - % If stock is issued - %
Question b. Assume that after the funds are invested, EBIT amounts to $16,900. Also assume the company pays $4,700 in dividends or $4,700 in interest depending on which source offinancing 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.