Why Is Debt Financing Said to Include a Tax Shield

question 52

Multiple Choice

Why is debt financing said to include a tax shield for the company?

• A) Taxes are reduced by the amount of the debt.
• B) Taxes are reduced by the amount of the interest.
• C) Taxable income is reduced by the amount of the debt.
• D) Taxable income is reduced by the amount of the interest.

---

Definitions:

Scalar Chain Principle

A concept in organizational management that asserts a clear and unbroken line of authority within the hierarchy of an organization from the top to the bottom.

Henri Fayol

A French industrialist and a pioneering management theorist who developed a general theory of business administration.

Hierarchy of Authority

A system in which different positions are ranked relative to each other within an organization, with higher levels having more power and responsibility.

Douglas McGregor

An American social psychologist who proposed the Theory X and Theory Y concepts in management, relating to two different views of how managers perceive workers' motivations.