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Clayton Industries has the following account balances: Current assets Noncurrent assets $ 22,000 Current liabilities 72,000 Noncurrent liabilities Stockholders' equity The company wishes to raise $35,000 in cash and is considering two financing options: Clayton can sell $35,000 of bonds payable it can issue additional common stock for $35,000. 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. Currently If bonds are issued If stock is issued Current Ratio 3.14 to 11 to 1 to 1 $ 7,000 47,000 40,000 a-2. Compute the debt-to-assets ratio for Clayton's management. Note: Round your answers to 1 decimal place.

Clayton Industries has the following account balances: Current assets Noncurrent assets $ 22,000 Current liabilities 72,000 Noncurrent liabilities Stockholders' equity The company wishes to raise $35,000 in cash and is considering two financing options: Clayton can sell $35,000 of bonds payable it can issue additional common stock for $35,000. 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. Currently If bonds are issued If stock is issued Current Ratio 3.14 to 11 to 1 to 1 $ 7,000 47,000 40,000 a-2. Compute the debt-to-assets ratio for Clayton's management. Note: Round your answers to 1 decimal place.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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2 b. Assume that after the funds are invested, EBIT amounts to $17,700. Also assume the company pays $3,500 in dividends or $3,500 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. Bonds Stock 4x Additional Retained Earnings 3 50° F3 54 $ F4 DII % 5 FS < Prev -Q F6 A 6 10 of 10 ‒‒‒ www F7 & 7 Next > PrtScn FB 8 Home F9 End 9 F10 Pgl
Transcribed Image Text:2 b. Assume that after the funds are invested, EBIT amounts to $17,700. Also assume the company pays $3,500 in dividends or $3,500 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. Bonds Stock 4x Additional Retained Earnings 3 50° F3 54 $ F4 DII % 5 FS < Prev -Q F6 A 6 10 of 10 ‒‒‒ www F7 & 7 Next > PrtScn FB 8 Home F9 End 9 F10 Pgl
D ook int Exercise 10-25A (Algo) Determining the effects of financing alternatives on ratios LO 10-8 Clayton Industries has the following account balances: Current assets Noncurrent assets $ 22,000 Current liabilities 72,000 Noncurrent liabilities Stockholders' equity Required a-1. Compute the current ratio for Clayton's management. Note: Round your answers to 2 decimal places. Currently If bonds are issued If stock is issued The company wishes to raise $35,000 in cash and is considering two financing options: Clayton can sell $35,000 of bonds payable it can issue additional common stock for $35,000. 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. Currently Current Ratio 3.14 to 11 to 1 to 1 a-2. Compute the debt-to-assets ratio for Clayton's management. Note: Round your answers to 1 decimal place. Saved Debt to Assets Ratio % $7,000 47,000 40,000
Transcribed Image Text:D ook int Exercise 10-25A (Algo) Determining the effects of financing alternatives on ratios LO 10-8 Clayton Industries has the following account balances: Current assets Noncurrent assets $ 22,000 Current liabilities 72,000 Noncurrent liabilities Stockholders' equity Required a-1. Compute the current ratio for Clayton's management. Note: Round your answers to 2 decimal places. Currently If bonds are issued If stock is issued The company wishes to raise $35,000 in cash and is considering two financing options: Clayton can sell $35,000 of bonds payable it can issue additional common stock for $35,000. 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. Currently Current Ratio 3.14 to 11 to 1 to 1 a-2. Compute the debt-to-assets ratio for Clayton's management. Note: Round your answers to 1 decimal place. Saved Debt to Assets Ratio % $7,000 47,000 40,000
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