A Project's Depreciation Expense Must Be Considered When Evaluating Its

question 48

Multiple Choice

A project's depreciation expense must be considered when evaluating its incremental operating cash flows because:

• A)depreciation represents a tax-deductible cash expense.
• B)the firm incurs a cash payment equal to the depreciation expense each year.
• C)depreciation has an impact on the taxes paid by the firm, which is a cash flow.
• D)depreciation is a sunk cost.
• E)depreciation is a fixed cash payment that the firm receives each year.

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Definitions:

Extract

A substance obtained from a plant, animal, or mineral, often used for flavoring or in medicine.

Sell

The act of giving something in exchange for money.

Extraction Costs

The expenses associated with the removal of natural resources from the earth, such as mining for minerals or drilling for oil.

Nonrenewable Resource

A natural resource that cannot be replaced once it has been used or is not replenished in a short period of time, such as fossil fuels and minerals.