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Module I· Interview Essentials AccountingIntermediate
Question

Depreciation increases by 10. What happens across the three statements? Tax rate 25%.

Answer

NI falls by 7.5; CFO rises by 2.5 because D&A is added back; PP&E falls by 10; cash rises by 2.5; equity falls by 7.5.

Deep diveShow more details

This is the classic tax-shield question: cash increases by tax rate x depreciation increase.

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