A new project is expected to have the following effects on the ﬁnancial statements of a ﬁrm. The
effect of an increase in the depreciation expense should be included in the net working capital
requirements for the project.

Question

Quizplus · Accepted Answer

The effect of an increase in depreciation expense should be reflected in the cash outflows for the project, but it should not be included in the calculation of net working capital requirements. Net working capital only includes current assets and liabilities, while depreciation expense is a non-cash expense that affects the income statement and the tax liability.

A New Project Is Expected to Have the Following Effects