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11 February, 19:40

Depreciation associated with a project will: Answer A. cause incremental cash flows to increase B. only affect the fixed asset account as depreciation is a sunk cost C. have no effect on incremental cash flows D. cause incremental operating cash flows to decrease

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  1. 11 February, 22:42
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    Answer: A. cause incremental cash flows to increase

    Explanation:

    Incremental Cashflow (ICF) is the added cash that a company gets from embarking on a project which means that this Cashflow must be independent of expenses. If ICF is positive then the company will see it's Cashflow increase if they accept the project because it will contribute to their cash flow.

    ICF is calculated from the Net Income of the project but seeing as Depreciation is a non-cash expense that is removed from the Income Statement. In calculating ICF it is added back as ICF deals with actual cash and Depreciation did not cost any actual cash.

    More Depreciation therefore means an increase in Incremental Cash flow when it is being calculated from Net Income.
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Home » Business » Depreciation associated with a project will: Answer A. cause incremental cash flows to increase B. only affect the fixed asset account as depreciation is a sunk cost C. have no effect on incremental cash flows D.
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