Answer (B) is correct . A tax shield is something that will protect income against taxation. Thus, a depreciation tax shield is a reduction in income taxes due to a company’s being allowed to deduct depreciation against otherwise taxable income.
Answer (A) is incorrect because A tax shield is not a cash flow, but a means of reducing outflows for income taxes.
Answer (C) is incorrect because Cash is not provided by recording depreciation; the shield is a result of deducting depreciation from taxable revenues.
Answer (D) is incorrect because Depreciation is recognized as an expense even if it has no tax benefit.
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