The net cash flow of a project is equal to any increase in revenues brought about by the project less any increase in operating expenses and depreciation brought about by the project, multiplied by 1 - T), where T is the firm's marginal income tax rate.

Question

Quizplus · Accepted Answer

Net cash flow of a project is equal to any increase in revenues minus any increase in operating expenses (not including depreciation, as depreciation is a non-cash charge), and then the tax effect is applied to this net operating income before adding back depreciation (since depreciation affects taxes but does not represent a cash outflow).

The Net Cash Flow of a Project Is Equal to Any