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Husky industries has the following account balances

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Reference no: EM13924471

Husky Industries has the following account balances:

1892_264-B-A-L (2900)-1.png

The company wishes to raise $40,000 in cash, and is considering two financing options. Either it can sell $40,000 of bonds payable, or it can issue additional common stock for $40,000. To help in the decision process, Husky's management wants to determine the effects of each alternative on its current ratio and debt to assets ratio. 

Required: 

a. Help Husky's management by completing the following chart:

1207_264-B-A-L (2900)-2.png

b. Assume that after the funds are invested, EBIT amounts to $12,000. Also assume the company pays $4,000 in dividends or $4,000 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.

Reference no: EM13924471

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