Tax shield on depreciation = ?
ADepreciation × Tax rate
BDepreciation × (1 − t)
CDepreciation + Tax
DTax − Depreciation
Answer & Solution
Correct answer: A. Depreciation × Tax rate
1. Depreciation is a non-cash expense but reduces taxable income.
2. Tax saving = Depreciation × Tax rate.
3. This is the "tax shield" added back to cash flow.
_Source: ICAI BoS CA Inter Paper 6A, Ch 7 "Investment Decisions", §5 — Cash flow adjustments_