Depreciation expense rises by $10 and the tax rate is 20%. What is the net effect on cash flow from operations?
- A. Decreases by $10
- B. Increases by $2Correct
- C. Increases by $10
- 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.
