A. Depreciation is not incorporated in the discounted cash flow analysis of an investment proposal because it is a cost of operations that cannot be avoided. It is, rather, included because it affects cash flow and thus the discounted cash flow analysis for an investment proposal.

B. Depreciation is explicitly included in the calculation of the discounted cash flow of an investment proposal because it is a deductible expense for the purpose of calculating income tax liability. Thus, the cash outlay for income taxes is reduced by the depreciation and other income is shielded from tax.

C. Depreciation is itself neither a cash inflow nor a cash outflow. However, because it can shield other income from tax, it may result in a decrease in cash outflow, if the firm has other income to shield from tax.

D. Depreciation does represent the initial cash outflow spread over the life of the investment. However, this is not the reason depreciation is incorporated in the discounted cash flow analysis of an investment proposal.