The effect of a one-dollar increase in depreciation expenses is to ____ the typical firm's net cash flows by ____ one dollar.

Question

Quizplus · Accepted Answer

A one-dollar increase in depreciation expenses decreases net income but does not affect cash flow since depreciation is a non-cash expense. However, it can reduce taxable income, leading to a decrease in taxes paid, which indirectly increases net cash flows by less than one dollar.

The Effect of a One-Dollar Increase in Depreciation Expenses Is