Cash flow development for capital budgeting projects requires the inclusion of cash inflows and cash outflows associated with a new project. Depreciation, while recognized as a non-cash expense, is included in the cash flow development.
a) Why would depreciation be included in a capital budgeting project's cash flow development?
b) Which category (or categories) of cash flow development would depreciation be included? (List each category where depreciation is part of the cash flow development and explain why depreciation is included in that category.)