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Interest Tax Shield & Financial Success

What is an interest tax shield? What does it mean to the financial success of a firm?

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An interest tax shield is essentially a way to avoid paying taxes on the interest earned on an investment via financing arrangement - typically overseas, but potentially within municipalities (Business Dictionary, 2014). For companies, an investment may be in other company stock, bonds, or simply interest earned from a banking account. These earnings are typically taxable, unless they are a non-taxable municipal bond that the company owns ...

Solution Summary

246 words with reference explain the concept of an interest tax shield and how that can contribute to success.