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.

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Definitions:

Independent Variables

Variables in an experiment or statistical model that are manipulated or categorized to observe their effect on dependent variables.

Degrees Of Freedom

The number of independent values or quantities which can vary in the analysis without violating any constraints.

Observations

Individual data points or measurements collected during a study or experiment.