Why do we add back depreciation expense after subtracting it out on the "pro-forma" income statement of a capital budgeting project?

A) Because depreciation expense is not a cash flow. It does, however, reduce taxable income. After adding it back, the net result is the "depreciation tax shield", which is a cash flow in that it is a cost savings to the firm.

B) Because depreciation expense is not a cash flow, so it needs to be reversed so the net effect is zero.

C) Because depreciation expense is borne by the bondholders of a firm, and capital budgeting projects are analyzed on behalf of the common stockholders