Depreciation expenses affect capital budgeting analysis by increasing
A) taxes paid.
B) incremental cash flows.
C) the initial outlay.
D) working capital.

Question

Quizplus · Accepted Answer

Depreciation expenses do not directly result in cash outflows, but they reduce taxable income, which in turn reduces taxes paid. This effect increases the project's incremental cash flows because the tax savings from depreciation are considered a cash inflow in capital budgeting analysis.

Depreciation Expenses Affect Capital Budgeting Analysis by Increasing