The tax shield approach to computing the operating cash flow, given a tax-paying firm:
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i) separates cash inflows from cash outflows. |
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ii) is based on the fact that depreciation does not affect the operating cash flows. |
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iii) considers the changes in net working capital resulting from a new project. |
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iv) recognizes that depreciation creates a cash inflow. |
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v) ignores both interest expense and taxes. |