The tax shield approach to computing the operating cash flow,given a tax-paying firm:

Question

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The tax shield approach considers the tax deduction resulting from depreciation expenses, which creates a cash inflow due to the reduction in taxes paid. Therefore, the correct statement is "recognizes that depreciation creates a cash inflow." Choices A, B, and C are incorrect because the tax shield approach considers both interest expense and taxes, separates cash inflows and outflows, and considers changes in net working capital, respectively. Choice D is incorrect because depreciation affects operating cash flow, and the tax shield approach accounts for this effect.

The Tax Shield Approach to Computing the Operating Cash Flow,given