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Intermediate

Depreciation expense rises by $10 and the tax rate is 20%. What is the net effect on cash flow from operations?

  1. A. Decreases by $10
  2. B. Increases by $2Correct
  3. C. Increases by $10
  4. D. No effect, since depreciation is non-cash

Takeaway. A non-cash charge still moves cash through the tax line: extra depreciation is worth the tax rate times the charge, and nothing more.

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