Because depreciation is a non-cash expense item, it is not necessary to consider depreciation in estimating cash flows for a new capital project.

Question

Quizplus · Accepted Answer

Depreciation may not directly impact cash flows, but it does affect taxes, which in turn can affect cash flows. Additionally, depreciation is a factor in calculating the book value of assets and residual values, which can impact future cash flows when the asset is sold or disposed of. Therefore, depreciation should be considered in estimating cash flows for a new capital project.

Because Depreciation Is a Non-Cash Expense Item, It Is Not