Mauldin Welding Shop is considering the purchase of new high-tech welding equipment.If the equipment is purchased, Mauldin will incur an additional $8,000 in annual depreciation expense for the next five years.In determining the cash flows associated with the new equipment, the $8,000 of annual depreciation expense is
A)a cash outflow.
B)a cash inflow.
C)a sunk cost.
D)ignored in the cash flow analysis.

Question

Quizplus · Accepted Answer

Depreciation is a non-cash expense, so it does not directly affect cash flow and is therefore ignored in the cash flow analysis. However, it can indirectly affect cash flow through its impact on taxes.

Mauldin Welding Shop Is Considering the Purchase of New High-Tech