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Vanguard Corp reports $100M in Net Income. During the period, it recognizes a $100M depreciation expense. If the corporate tax rate is 40%, walk through the impact on the Cash Flow Statement.
- Net income falls by $100M, and operating cash flow also drops $100M since the expense is treated as a real outlay.
- Net income is unaffected, but cash flow still rises $40M purely from the resulting corporate tax shield benefit.
- Net income falls by $60M, but the depreciation add-back of $100M leads to a net cash increase of $40M.
- Net income falls $40M, leaving reported operating cash flow entirely unchanged for the period.
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