Max is opening a car wash. The initial investment in the project will be $225,000 for the building and related equipment. When compiling the project's pro forma statements, Max should note that the depreciation expense:

Question

Quizplus · Accepted Answer

Depreciation expense reduces taxable income, which in turn reduces the taxes paid by the business. This effect increases the operating cash flows because less cash is paid out for taxes. Depreciation is a non-cash expense, so while it reduces net income, it does not directly affect the cash flows generated from operations, except through its impact on taxes.

Max Is Opening a Car Wash