Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 16

“Depreciation expenses have no effect on cash flows and, therefore, are not relevant in capital-expenditure analysis.” Do you agree? Why or why not?

Step 1 of 2

Depreciation expenses are the expenses of using the asset during a period. It is an expense that does not include cash. There is no cash outlay when the future value of it is calculated. Depreciation expenses indirectly affect cash flow. The amount of depreciation reduces cash flow for income tax payment.