Which of the following correctly adjusts for depreciation when calculating a project's operating cash flow?
A) (revenues − cash expenses) × (1 − tax rate) + (tax rate × depreciation).
B) pretax profit + depreciation tax shield.
C) after-tax profit − depreciation.
D) ignore depreciation since it is not a cash flow.

Question

Quizplus · Accepted Answer

Option A correctly adjusts for depreciation by adding back the tax shield from depreciation (tax rate × depreciation) to the operating cash flow calculation. This recognizes the fact that depreciation is a non-cash expense that reduces taxable income and results in a tax savings.

Which of the Following Correctly Adjusts for Depreciation When Calculating