In terms of an investment project's operating cash flows,depreciation deductions are irrelevant because they do not represent an outlay of cash.

Question

Quizplus · Accepted Answer

Depreciation deductions may not represent an outlay of cash, but they do have an impact on the taxable income of the project, which can affect the amount of taxes paid and, ultimately, the operating cash flows of the project. Depreciation affects the amount of taxes paid because it reduces the taxable income of the project, thereby reducing the tax liability of the project. This reduction in tax liability can increase the operating cash flows of the project because the project has more cash on hand to invest in other projects or to pay dividends to shareholders. Therefore, depreciation deductions are relevant to the calculation of an investment project's operating cash flows.

In Terms of an Investment Project's Operating Cash Flows,depreciation Deductions