What Is a Depreciation Tax Shield?

A tax shield is a tool or method that can have the effect of avoiding or reducing corporate tax burdens. That is, taxes saved by borrowing.

Tax shield

First, the role of tax shields is limited . The focus of corporate financial management should be to improve the return of capital (earnings before interest and taxes). The total EBIT surplus depends on the total investment of the company and

Depreciation tax shield = depreciation amount X tax rate