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:

Pretest-Posttest

A research design that measures the effect of an intervention by comparing conditions before and after the intervention is applied.

Posttest-Only

A research design where measures are taken only after the experimental manipulation, without a pretest comparison.

Mortality

The loss of subjects who decide to leave an experiment. Mortality is a threat to internal validity when the mortality rate is related to the nature of the experimental manipulation.

Experimental Design

A research design used to test hypotheses and establish cause-effect relationships by manipulating one or more independent variables and observing the effect on dependent variables.