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:

Capital Contributions

Funds or resources provided by owners or shareholders to a company or partnership for its use in business operations, often to support growth or stabilize finances.

Capital Balance

The total amount of capital contributed by investors or owners plus retained earnings or minus losses.

Income Distribution

The way total income is shared among individuals or groups within an economy or organization.

Net Income

A company's total earnings or profit; calculated as revenues minus expenses, taxes, and the cost of goods sold.