The Answer is Both are partially right and partially wrong. Depreciation is not a cash expense, but it does affect taxable income and therefore taxes. Since taxes affect cash flow, depreciation must be subtracted to arrive at taxable income, then added back in to arrive at operating cash flow.

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Anderson-EOG Inc

question 1

Essay

Anderson-EOG Inc. is evaluating the the construction of a gas pipeline to bring natural gas from Western New York state to New York City. The controller argues that depreciation has to be included among the expenses. The Treasurer argues that depreciation is irrelevant because it does not affect cash flow. Who is correct?

Definitions:

High-density Polyethylene

A thermoplastic polymer made from the monomer ethylene, characterized by its strength, density, and resistance to moisture and chemicals.

Low-density Polyethylene

A type of polyethylene plastic characterized by its long branching chains, resulting in less dense and more flexible materials.

Poly(vinyl Alcohol)

A synthetic polymer obtained by the hydrolysis of polyvinyl acetate, widely used in textile and papermaking.

Polymerized

Describes a chemical process in which monomers are chemically bonded to form a polymer, a long molecule consisting of repeating units.