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:

Legal Validity

The quality of being officially acceptable or binding under the law.

Social Good

Actions or activities that benefit the largest number of people in the largest possible way, such as clean air, education, and public safety.

Tax-Exempt Status

A designation by tax authorities that allows an organization to be exempt from paying income tax on certain conditions.

Discriminated

Refers to unfair or prejudicial treatment of different categories of people or things, especially on the grounds of race, age, or sex.