The tax savings of the firm derived from the deductibility of interest expense is called the:
A) Interest tax shield.
B) Depreciable basis.
C) Financing umbrella.
D) Current yield.
E) Tax-loss carry-forward savings.

Question

Quizplus · Accepted Answer

The tax savings a firm realizes from the deductibility of interest expense is referred to as the Interest Tax Shield. This concept is based on the idea that interest expenses are deductible before taxes, which reduces the taxable income and thus the taxes a company needs to pay.

The Tax Savings of the Firm Derived from the Deductibility