Fill in the blank. If a company’s depreciation expense increased by $10m, what would be the net impact on cash? Assume the tax rate is 30.0% and round to the nearest whole number. Cash Impact = $_____m

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Multiple Choice

Fill in the blank. If a company’s depreciation expense increased by $10m, what would be the net impact on cash? Assume the tax rate is 30.0% and round to the nearest whole number. Cash Impact = $_____m

Explanation:
Depreciation is a non-cash expense that lowers taxable income, creating a tax shield. When depreciation increases by 10 million and the tax rate is 30%, the tax savings are 10 × 0.30 = 3 million. This reduces cash taxes paid, so cash increases by 3 million. There are no additional cash outflows from this change, so the net cash impact is +$3m.

Depreciation is a non-cash expense that lowers taxable income, creating a tax shield. When depreciation increases by 10 million and the tax rate is 30%, the tax savings are 10 × 0.30 = 3 million. This reduces cash taxes paid, so cash increases by 3 million. There are no additional cash outflows from this change, so the net cash impact is +$3m.

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