In what manner does depreciation expense affect investment projects?
A)it reduces cash flows by the amount of the depreciation expense.
B)it increases cash flows by the amount of the depreciation expense.
C)it reduces taxable income by the amount of the depreciation expense.
D)it reduces taxes by the amount of the depreciation expense.

Question

Quizplus · Accepted Answer

Depreciation expense reduces taxable income and therefore reduces the amount of taxes that need to be paid. However, it does not directly affect cash flows as it is a non-cash expense.

In What Manner Does Depreciation Expense Affect Investment Projects