What impact will an increase in depreciation have upon a firm?
A)decrease profit and decrease cash flow
B)decrease profit and increase cash flow
C)increase profit and decrease cash flow
D)increase profit and increase cash flow

Question

Quizplus · Accepted Answer

An increase in depreciation will decrease profit because depreciation is an expense that reduces taxable income. However, it will increase cash flow because it is a non-cash expense, thus reducing the amount of tax paid without affecting the actual cash flow.

What Impact Will an Increase in Depreciation Have Upon a Firm