11. [Tax effect of zero coupon debt] PepsiCo [PEP] reported a deferred tax asset of $73 million at December 31. 2000 ($76 and $79 million at December 31, 1999 and 1998, respectively) re- sulting from outstanding zero coupon debt.

a. Explain why zero coupon debt might generate deferred tax assets.

b. Describe the expected trend of these deferred tax assets over the life of the debt. Note: Do not forget to consider what hap- pens when the debt matures.

c. Without prejudice to your answer to part

b, explain why the deferred tax asset related to the zero coupon debt has de- clined each year.