Exercise 10-25A (Algo) Determining the effects of financing alternatives on ratios LO 10-8 Clayton Industries...
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Exercise 10-25A (Algo) Determining the effects of financing alternatives on ratios LO 10-8 Clayton Industries has the following account balances. The company wishes to raise $41,000 in cash and is considering two financing options: Clayton can sell $41,000 of bonds payable, or it can issue addinional common stock for $41,000. 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. a-2. Compute the debt-to-assets ratio for Clayton's management. b. Assume that after the funds are invested, EBIT amounts to $12,800. Also assume the company pays $4,200 in dividends or $4,200 in integest depending on which source of financing is used. Based on a 40 percent tax rate, determine the amount of the increase in tetaind earnings that would result under each financing option. Complete this question by entering your answers in the tabs below. Compute the current rotio for Clayton's manogement. (Round your answers to 2 decimal places.)
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