Any financial benefit derived from the interest tax shield accrues to the:
A) bondholders.
B) shareholders.
C) bondholders and shareholders equally.
D) shareholders and the federal government.

Question

Quizplus · Accepted Answer

The interest tax shield refers to the tax deduction companies receive for paying interest on debt. This tax benefit reduces the amount of taxes paid by the company, which ultimately benefits the shareholders as they receive a larger portion of profits. Bondholders do not benefit from the interest tax shield as they receive a fixed interest payment regardless of taxes paid by the company. Therefore, the financial benefit derived from the interest tax shield accrues solely to the shareholders.

Any Financial Benefit Derived from the Interest Tax Shield Accrues