Use the Following Information to Answer the Question(s)below

question 71

Multiple Choice

Use the following information to answer the question(s) below.
Google Corporation has no debt on its balance sheet in 2008,but paid $1.6 billion in taxes.Assume that Google's marginal tax rate is 35% and Google's borrowing cost is 7%.
-Assume that investors in Google pay a 15% tax rate on income from equity and a 35% tax rate on interest income.If Google were to issue sufficient debt to reduce its taxes by $1 billion per year permanently,then the effective tax advantage of this debt would be closest to:

• A)10%.
• B)15%.
• C)25%.
• D)30%.

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Definitions:

Sampling Error

The discrepancy between the statistical characteristics of a sample and those of the entire population, arising purely from the randomness of the sample selection.

Dummy Variables

Variables used in regression analysis to represent categorical data by assigning numerical values, typically 0 or 1, to represent the presence or absence of certain characteristics.

Categorical Variable

A variable that represents groups or categories, which are not numerical.

Regression Equation

An equation that describes the average relationship between a dependent variable and one or more independent variables.