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

question 38

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)$6.4 billion.
• B)$8.6 billion.
• C)$9.8 billion.
• D)$14.3 billion.

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Definitions:

Abnormally

In a manner deviating from what is considered normal or typical; unusually.

Tachy-

A prefix in medical terminology indicating rapid or fast, often used in relation to heart rate, as in tachycardia.

-ectasis

A suffix used in medical terminology to denote a dilation or expansion of a hollow organ or body part.

Dilating

The process of making or becoming wider, larger, or more open.