Cascade Industries has the following account balances:

The company wishes to raise $50,000 in cash and is considering two financing options: Cascade can sell $50,000 of bonds payable, or it can issue additional common stock for $50,000. To help in the decision process, Cascade’s management wants to determine the effects of each alternative on its current ratio and debt-to-assets ratio.

Required
a. Help Cascade’s management by completing the following chart:

b. Assume that after the funds are invested, EBIT amounts to $18,000. Also assume the company pays $5,000 in dividends or $5,000 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.

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Current liabilities Noncurrent liabilities Stockholders' equity Current assets Noncurrent assets $15,000 75,000 60,000 120,000 Ratio Currently If Bonds Are Issued If Stock Is Issued Current ratio Debt-to-assets ratio