<p>Depreciation is tax-deductible. The firm in question pays taxes. If depreciation increases, then taxes paid decrease. If taxes paid decrease, then cash flow increases. <em>ceteris paribus</em></p>

CC BY-SA 3.0
2015-09-05T15:20:33.687Z
2015-09-05T15:20:33.687Z
410 gone
<p>I came across a question in first year's finance book.The question is: </p>

<p>For a tax-paying firm, an increase in ______will cause the cash flow from assets to increase.</p>

<p>A. Change in net working capital
B. Production costs
C. Depreciation
D. Taxes
E. Net capital spending</p>

<p>C is the right answer, however I am not clear why depreciation increase the cash flow. Thanks for your help.</p>

CC BY-SA 3.0
2015-09-05T18:02:43.917Z
Please clarify what "cash-flow _from assets_" means /how is defined.
Alecos Papadopoulos
<corporate-finance><accounting>
How does depreciation affect the cash flow in a tax-paying company?
user5618
# How does depreciation affect the cash flow in a tax-paying company?

(Asked by: username_0 on 2015-09-05)

I came across a question in first year's finance book.The question is:

For a tax-paying firm, an increase in \_\_\_\_\_\_will cause the cash flow from assets to increase.

A. Change in net working capital
B. Production costs
C. Depreciation
D. Taxes
E. Net capital spending

C is the right answer, however I am not clear why depreciation increase the cash flow. Thanks for your help.

**Tags:** corporate-finance, accounting

> **Comments:**
> **username_1**: Please clarify what "cash-flow _from assets_" means /how is defined.  

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## 1 answers

### Answer by username_2 on 2015-09-05. Score: 1 | Accepted answer

Depreciation is tax-deductible. The firm in question pays taxes. If depreciation increases, then taxes paid decrease. If taxes paid decrease, then cash flow increases. *ceteris paribus*


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