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Deduction of interest expense in the calculation

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Reference no: EM133121103

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.

Reference no: EM133121103

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