12. A firm is evaluating a new machine to replace an existing, older machine. Th
ID: 2803498 • Letter: 1
Question
12. 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 after-tax net operating 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.Explanation / Answer
Depreciation is the non cash expenses which are shown in the revenue account of any company for claiming the benefits of income tax. So depreciation will save the income tax and there is no cash outtflow becasue of this expenses.
For Calculating the cash flow we can add the depreciation in net profit after tax to calculate the supplemental operating cash Flow.
As per the above, Answer = Option B
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