a. Go to finance.yahoo.com and find the profiles for PepsiCo (PEP) and IBM (IBM) and then look


a. Go to finance.yahoo.com and find the profiles for PepsiCo (PEP) and IBM (IBM) and then look at each firm's annual balance sheet and income statement under "Financials" Calculate the present value of the interest tax shield contributed by each company's long-term debt. Assume a 34% tax rate for both companies. Now suppose that each issues $3 billion more of long-term debt and uses the proceeds to repurchase equity. How would the interest tax shield change?
b. While you are logged in to the Yahoo page for PepsiCo or IBM, move down and click on "Industry" in the left-hand column. This will give you a table of financial ratios for different industries in the United States. Compare the debt-equity ratios for different industries. Can you account for the differences? Are they better explained by the trade-off theory or the pecking-order theory?
Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...
Financial Ratios
The term is enough to curl one's hair, conjuring up those complex problems we encountered in high school math that left many of us babbling and frustrated. But when it comes to investing, that need not be the case. In fact, there are ratios that,...
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Fundamentals of Corporate Finance

ISBN: 978-1259024962

6th Canadian edition

Authors: Richard Brealey, Stewart Myers, Alan Marcus, Devashis Mitra, Elizabeth Maynes, William Lim

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