Why Does Depreciation Have an Indirect Effect on Cash Flows

question 69

Multiple Choice

Why does depreciation have an indirect effect on cash flows?

• A)It reduces the amount of income taxes a company must pay.
• B)It reduces the original cash outflow associated with the asset.
• C)It reduces the annual operating cash flows.
• D)It causes net income to be less than operating cash flows.

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Definitions:

Unexplained Variation

The portion of the total variation in a set of data that cannot be attributed to the variables considered in a study or model.

Unbiased Estimator

A statistic used to estimate a parameter of a population that, on average, exactly equals the true parameter.

Variance

Variance measures the dispersion of a set of data points around their mean value, quantifying how spread out the data points are.

Error Variable

The difference between observed and predicted values in a statistical model, representing unexplained or random variability.