When calculating cash flow, why is depreciation first subtracted but then added back in?

- Because it is not a real cash outflow but does create a tax deductible expense
- Because it is an expense that can be immediately and fully deducted from the revenues of the firm
- Because it changes from negative to positive as the project moves forward
- Because it serves to increase the amount of tax the firm will have to pay to the tax authorities
- Because it has the unusual characteristic of switching signs in the middle of most projects

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contexto1019 contexto1019 · Answer 1 · 2022-12-15T11:46:31+01:00

The depreciation can be best described as- Because it is not a real cash outflow but does create a tax deductible expense.

Depreciation is the estimated decrease in value of fixed assets over the course of a fiscal year.
Large lump sum purchases are made for tangible things like real estate, machinery, vehicles, and so forth.
Depreciation is an accounting technique for spreading out the expense of a tangible item over the course of its useful life. How much of an asset's value has been used is shown through depreciation.
It enables businesses to purchase assets over a predetermined length of time and generate income from those assets.

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