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

question 97

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 25% tax rate on interest income.If Google were to issue sufficient debt to reduce its taxes by $600 million 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:

PST

Provincial Sales Tax, a tax levied by some provinces in Canada on the sale of goods and services.

GST

A tax on goods and services meant for domestic consumption, the Goods and Services Tax is a value-added tax charged on most products and services.

Grade Point Average

A numerical calculation that represents the average value of the accumulated final grades earned in courses over time, standardized on a scale.

Letter Grades

Letter Grades are symbols used in educational institutions to represent the quality of a student's work or performance, ranging typically from A (excellent) to F (failure).