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, which in turn reduces the tax liability, thereby indirectly increasing cash flows.

In What Manner Does Depreciation Expense Affect Investment Projects