. Effect of transactions on ratios (Learning Objective 4)
General Motors and Ford Motor Company both had a bad year in 2005; the companies’ auto units suffered net losses. The loss pushed some return measures into the negative column, and the companies’ ratios deteriorated. Assume that top manage¬ ment of GM and Ford are pondering ways to improve their ratios. In particular, man¬ agement is considering the following transactions:
1. Borrow $100 million on long-term debt 2. Purchase treasury stock for $500 million cash 3. Expense one-fourth of the goodwill carried on the books 4. Create a new auto design division at a cash cost of $300 million 5. Purchase patents from DaimlerChrysler, paying $20 million cash Requirements Top management wants to know the effects of these transactions (increase, decrease, or no effect) on the following ratios:

a. Current ratio

b. Debt ratio

c. Return on equity