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

question 60

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 corporate taxes by $1 billion per year permanently,then the value that would be created is closest to:

• A)$6.1 billion.
• B)$10.2 billion.
• C)$12.2 billion.
• D)$14.3 billion.

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Definitions:

Agency Relationship

A legal relationship in which one party, the agent, is authorized to act on behalf of another, the principal, in transactions with third parties.

Independent Contractor

A person or entity contracted to perform work for another entity as a non-employee, often with a higher degree of autonomy in their work process.

Employee

An individual who is hired and paid by an employer to perform specific tasks or services under certain conditions in exchange for compensation.

Physical Conduct

Actions or behaviors of an individual that can be observed and measured in the physical space.