Answer (C) is correct . Depreciation is a noncash expense that is deductible for federal income tax purposes. Hence, it directly reduces the cash outlay for income taxes and is explicitly incorporated in the capital budgeting model.
Answer (A) is incorrect because Depreciation is not a cost of operations in the capital budgeting model. Also, depreciation can be avoided by not making investments.
Answer (B) is incorrect because Depreciation is an allocation of historical cost and as such is not a cash inflow, but it may reduce cash outflows for taxes.
Answer (D) is incorrect because Periodic depreciation is determined by spreading the depreciation base, i.e., the cost of the asset minus salvage value, not the initial cash outflow, over the life of the investment.
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