When undertaking a capital budgeting problem with taxes,the total cash effect of depreciation expense on a long-term asset is ________.
A)nonexistent
B)indeterminate
C)the tax savings from the depreciation expense
D)the tax outflow from the depreciation expense

Question

Quizplus · Accepted Answer

The total cash effect of depreciation expense on a long-term asset is the tax savings from the depreciation expense. This is because depreciation expense is a deductible expense for tax purposes, which reduces the taxable income and hence the amount of taxes owed. Therefore, the tax savings from depreciation is a cash inflow that should be included in the analysis of the capital budgeting problem.

When Undertaking a Capital Budgeting Problem with Taxes,the Total Cash