Putting “yum” on people’s faces around the world is the mission of YUM Brands, Inc. Yum was spun off from PepsiCo in 1997. A spin-off occurs when a company separates its operations into two or more distinct companies. The company was originally composed of KFC, Pizza Hut, and Taco Bell and was operated as a part of PepsiCo prior to the spin-off. In 2002 YUM acquired A &W All American Foods and Long John Silver’s units. The acquisition pushed YUM’s debt to \($4.8\) billion . YUM’s net income before interest and taxes in 2002 was \($1.03\) million .

Required:

a. IfYUM’s debt remains constant at \($4.8\) billion for 2003, how much interest will YUM incur in 2003, assuming the average interest rate is 7 percent?

b. Does the debt seem excessive compared with the amount of 2002 net income before interest and taxes? Explain.

c. Assuming YUM pays tax at the rate of 30 percent, what amount of tax will YUM pay in 2002?

d. Assume you are the president of the company. Write a memo to the shareholders explaining how YUM is able to meet its obligations and increase stockholders’ equity.