Suppose you are the TA for Finance. A student in the class is very puzzled by how operating cash flows are calculated. He does not understand why he needs to add the amount of depreciation back to after-tax earnings to get total cash flows. He also notes that there is no deduction of interest expense in the calculation, and thus he thinks the tax burden is understated. Provide your explanation.

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Heres an explanation for why depreciation is added back to aftertax earnings and interest expense isnt included in operating cash flow Why Add Back De... View the full answer