A Firm Is Evaluating a New Machine to Replace an Existing

question 46

Multiple Choice

A firm is evaluating a new machine to replace an existing, older machine. The change in depreciation is $3,000. The firm's marginal tax rate is 30 percent. Which of the following statements is true?

• A) Depreciation does not affect the calculation of the supplemental operating cash flow.
• B) Depreciation is added to the net income to calculate the supplemental operating cash flow.
• C) Depreciation expense is added to the initial outlay incurred to purchase an asset.
• D) Depreciation is deducted from the terminal cash flows from an asset.
• E) Depreciation is included in capital budgeting only if it exceeds the tax expense of an asset.

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