The depreciation tax shield is best defined as the:
A) amount of tax that is saved when an asset is purchased.
B) tax that is avoided when an asset is sold as salvage.
C) amount of tax that is due when an asset is sold.
D) amount of tax that is saved because of the depreciation expense.
E) amount by which the aftertax depreciation expense lowers net income.

Question

Quizplus · Accepted Answer

The depreciation tax shield refers to the amount of tax that is saved because of the depreciation expense. This is because depreciation is treated as an expense on the income statement, which reduces taxable income and therefore reduces the amount of tax that must be paid.

The Depreciation Tax Shield Is Best Defined as The