Which of the Following Statements Regarding Interest Tax Shields Is

question 36

Multiple Choice

Which of the following statements regarding interest tax shields is correct?

• A) Taxes are reduced by the amount of a firm's interest-bearing debt.
• B) Taxable income is reduced by the amount of a firm's interest-bearing debt.
• C) Taxes are reduced by the amount of the interest on a firm's debt.
• D) Taxable income is reduced by the amount of the interest on a firm's debt.

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Definitions:

Operating Activities

Transactions and events that relate to the primary operations of the company, including cash received from customers and cash paid for expenses.

Resources

Assets, materials, and inputs needed by businesses to produce goods or services.

Land

An asset represented by the earth's surface not depreciated over time, considered a fixed asset on a company's balance sheet without an expiration or useful life.

Financing Activity

Activities that result in changes in the size and composition of the equity capital or borrowings of a company.