Which of the following statements about the effect of depreciation on cash flows is correct?

Question

Quizplus · Accepted Answer

Depreciation reduces a firm's income tax liability, which ultimately results in decreased cash outflows due to tax savings. Depreciation is a non-cash expense and does not directly increase or decrease cash outflows. Therefore, both option A and B are incorrect. Option D is also incorrect as the effect of depreciation on cash flows is not dependent on whether an investment produces future revenues or not.

Which of the Following Statements About the Effect of Depreciation