When the effect of income taxes is considered in a capital budgeting analysis,the amount of depreciation expense must be added back to after-tax income to calculate the annual cash inflow.

Question

Quizplus · Accepted Answer

Depreciation expense is a non-cash expense that reduces taxable income and therefore reduces the amount of income taxes paid. When considering the effect of income taxes on capital budgeting analysis, depreciation expense must be added back to after-tax income to calculate the annual cash inflow.

When the Effect of Income Taxes Is Considered in a Capital