Create a response: When evaluating projects, it is important to focus on the relevant after$-$tax cash flows. Some might think that depreciation does not matter because it is a non$-$cash expense, but this is not true. Depreciation lowers a company$$s taxable income, which reduces the amount of taxes it has to pay. This results in a tax savings known as the depreciation tax shield, which increases the actual cash the company keeps. Because of this, depreciation plays a key role in determining a project$$s financial value.

For example, if a company invests in a new building, the cost is not deducted all at once but is spread out over several years through depreciation. Even though the company is not making annual cash payments for the building, the tax savings from depreciation help improve cash flow. If depreciation were ignored, the project might appear less profitable than it actually is$.$ Therefore, it should always be included when evaluating projects.