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 of the firm derived from the deductibility of interest expense is called the interest tax shield. This refers to the reduction in taxes that a company can achieve due to the deduction of interest payments from taxable income. This results in a reduction in the amount of taxes that the company has to pay and increases the net income available to be distributed to shareholders or reinvested in the business.

The Tax Savings of the ﬁRm Derived from the Deductibility