Time had a bad year in 2001; the company suffered a net loss. The loss pushed most of the return measures into the negative column, and the current ratio dropped below 1.0. The company's debt ratio is still only .27. Assume top management of Time is pondering ways to improve the company's ratios. In particular, management is considering the following transactions:

1. Borrow 100 million of long-term debt
2. Purchase treasury stock for $500 million cash
3. Expense on-fourth of goodwill carried on the books at $128 million
4. Sell advertising, and the advertisements will run immediately
5. Purchase tradmarks from NBC, paying $20 million cash

required
Top management wants to know the effects of these transactions (increase, decrease, or no effect) on the following ratios of Time:
a. current ratio b. debt ratio c. Return on Equity

To determine the effects of the given transactions on Time's current ratio, debt ratio, and return on equity, let's analyze each transaction one by one:

1. Borrow 100 million of long-term debt:
- Current Ratio: This transaction does not affect the current ratio since it does not involve any change in current assets or liabilities.
- Debt Ratio: The debt ratio will increase since long-term debt is added to the company's liabilities.
- Return on Equity: This transaction does not directly impact return on equity.

2. Purchase treasury stock for $500 million cash:
- Current Ratio: This transaction decreases the current ratio since it involves a decrease in current assets (cash) without a corresponding decrease in current liabilities.
- Debt Ratio: This transaction does not directly impact the debt ratio.
- Return on Equity: This transaction does not directly impact return on equity.

3. Expense one-fourth of goodwill carried on the books at $128 million:
- Current Ratio: This transaction does not affect the current ratio since it does not involve any change in current assets or liabilities.
- Debt Ratio: This transaction does not directly impact the debt ratio.
- Return on Equity: The expense reduces the net income, which affects the return on equity negatively.

4. Sell advertising, and the advertisements will run immediately:
- Current Ratio: This transaction does not affect the current ratio since it does not involve any change in current assets or liabilities.
- Debt Ratio: This transaction does not directly impact the debt ratio.
- Return on Equity: This transaction does not directly impact return on equity.

5. Purchase trademarks from NBC, paying $20 million cash:
- Current Ratio: This transaction does not affect the current ratio since it does not involve any change in current assets or liabilities.
- Debt Ratio: This transaction does not directly impact the debt ratio.
- Return on Equity: This transaction does not directly impact return on equity.

Based on the analysis above, here are the effects of the transactions on Time's ratios:

a. Current Ratio: Transaction 2 (purchase of treasury stock) decreases the current ratio.
b. Debt Ratio: Transaction 1 (borrowing long-term debt) increases the debt ratio.
c. Return on Equity: Transaction 3 (expense of goodwill) decreases the return on equity.