When considering an investment that generates an income stream, how is depreciation handled in the calculation of annual cash flows?

• A. Depreciation is an expense and therefore is deducted from income in computing cash flows.
• B. Depreciation reflects the portion of capital costs that are expensed each year and therefore must be deducted in calculating cash flows.
• C. Depreciation is an accounting convention that has no effect on projected cash flows.
• D. Depreciation is a non-cash expense that must be added back to net income to calculate after-tax cash flows .