Examples of tax shields available to firms include:
A)interest income and investment income.
B)hedging expenses and tax-free income.
C)depreciation and interest paid.
D)bond issuance expenses and dividends paid.

Question

Quizplus · Accepted Answer

Depreciation and interest paid are tax shields that reduce a company's taxable income. Depreciation allows companies to deduct the cost of assets over their useful lives, and interest paid on loans can be deducted as an expense. In contrast, A, B, and D are not typically tax shields. Interest income and investment income are taxable, hedging expenses are not deductible in all cases, and tax-free income is already free from taxation. Bond issuance expenses and dividends paid are not usually considered tax shields.

Examples of Tax Shields Available to Firms Include