Question

All else equal, a project's operating cash flow will increase when the:

a-net working capital requirement increases,
b-sales projections are lowered
c-interest expense is lowered.
d-depreciation expense increases
e-earnings before interest and taxes decreases.

Answer 1

A project's operating cash flow will increase when the depreciation expense increases. This happens because depreciation is a non-cash expense that doesn't directly affect cash flow, and it can aid in reinvestment and growth by reducing taxable income.

Step-by-step explanation:

The question is concerned with understanding how different factors can affect a project's operating cash flow. To answer the student's query:

All else equal, a project's operating cash flow will increase when the depreciation expense increases. This is because depreciation is a non-cash charge which reduces taxable income, therefore, increasing the cash flow from operating activities.

It is essentially a paper expense that reduces reported earnings, but does not impact cash which can be reinvested in the business for growth.

Regarding the other options, net working capital requirement increases usually means more cash is tied up, which decreases cash flow, sales projections being lowered will reduce cash flow because there will be less revenue, interest expense being lowered could increase cash flow but through financing activities, not operating cash flow, and earnings before interest and taxes decreasing would typically lower cash flow.