Describe the impact of higher depreciation on the operating

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A company's operating section of the cash-flow statement appears as follows:

Net income72

Adjustment to reconcile net income to operating cash flows due to the depreciation expense during the period38

Operating cash flow=110

Problem 1: Suppose the depreciation expense had been $48 instead of $38. Ignore taxes. Which one of the following statements describes the impact of higher depreciation on the operating cash flows?

a. The operating cash flow would have been $120 because depreciation is a source of cash and higher depreciation implies a higher operating cash flow.

b. A higher depreciation expense would have lowered net income by $10 to $62. The addback for depreciation would have been $48 leaving the operating cash flow unchanged at $110.

Reference no: EM132965243

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