Which of the Following Statements About the Effect of Depreciation

question 18

Multiple Choice

Which of the following statements about the effect of depreciation on cash flows is correct?

• A)It does not affect cash flows because it is a non-cash expense
• B)It directly increases cash outflows,just like any other expense
• C)It decreases cash outflows because it reduces a firm's income tax liability
• D)It affects cash flows only in those cases where an investment produces future revenues

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Definitions:

Rival In Consumption

A characteristic of a good whereby its consumption by one individual decreases its availability for consumption by another.

Allocate Resources

The process of distributing available resources among various projects or business units.

Markets

Places or systems in which goods, services, and assets are exchanged, usually with prices determined by supply and demand.

Efficiently

Conducting an activity in such a manner that it achieves the maximum output with the minimum input or resources, without waste.