Paul Spector

On finance.yahoo.com 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. 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? In each case assume that the debt is fixed and permanent