Discussion
Depreciation is not a cash flow, yet it affects a project's cash flows through
Answer: B
Correct answer: the tax it saves
No money moves when depreciation is charged, but the charge reduces taxable income, and the tax not paid is a genuine cash saving. That is why depreciation appears in a project’s cash flow analysis at all: it enters only through the tax computation, and its value to the firm is the charge multiplied by the tax rate.
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