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:

Cause-and-Effect Relationships

The relationship between events where one or more are the cause of the other(s), establishing a connection between a condition or event and its outcome or consequences.

Naturalistic Observation

A research method in which subjects are observed in their natural environment without any manipulation by the researcher.

Researchers Control

Refers to the various methods and techniques researchers use to minimize influences that could deviate or invalidate the results of their study.

Observer Bias

A type of research bias that occurs when an observer's expectations, beliefs, or preferences influence the outcomes of a study or experiment unintentionally.