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 carryforward 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 is because the interest expense is deductible from the firm's taxable income, resulting in a reduction of the taxes that the firm has to pay. The interest tax shield is calculated by multiplying the amount of interest paid by the firm's tax rate.

The Tax Savings of the ﬁRm Derived from the Deductibility