The cash ﬂow tax savings generated as a result of a ﬁrm's tax-deductible depreciation expense is called (the) _______________________.

Question

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The cash flow tax savings generated as a result of a firm's tax-deductible depreciation expense is referred to as the depreciation tax shield. This is because the depreciation expense reduces taxable income, which results in lower taxes paid, creating a tax shield for the company. Option A, after-tax depreciation savings, is not a widely used term. Option B, depreciable basis, is the total amount of an asset's cost that can be depreciated over time. Option D, operating cash flow, refers to the amount of cash generated or used by a company's core business operations. Lastly, option E, after-tax salvage value, is the amount of cash a firm receives from the sale of an asset after paying taxes on the sale proceeds.

The Cash ﬂOw Tax Savings Generated as a Result of a ﬁRm's