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Depreciation and capital budgeting

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In capital budgeting analysis, a proposed project is typically evaluated based on cash flows. Since depreciation is non-cash expense, it is irrelevant in capital budgeting analysis. Is the statement true or false? Explain

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The solution explains the relevance of depreciation in capital budgeting

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The statement is false. It is correct that a project is evaluated based on cash flows and depreciation is a non-cash expense. Depreciation affects the cash flows by reducing the amount of tax and so ...

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