Question

What is an interest tax shield ,and how does this affect the value of company?

Answer 1

Answer:

[4], an interest tax shield is defined as: tax savings resulting from deductibility of interest payments. According to Damodaran [5], the interest tax shield is expressed in a similar vein: Interest is tax-deductible, and the resulting tax savings reduce the cost of borrowing to firms.

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Answer 2

Answer:

For example, because interest on debt is a tax-deductible expense, taking on debt creates a tax shield. Since a tax shield is a way to save cash flows, it increases the value of the business, and it is an important aspect of business valuation.

Explanation:

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