How can a tax reduction affect cash flow in this context?

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Multiple Choice

How can a tax reduction affect cash flow in this context?

Tax reductions lower tax expense, which directly boosts net earnings (net income). Since net earnings equal revenue minus all expenses, a reduction in taxes leaves more of the company’s profits after taxes, increasing the bottom line by the amount of the tax savings (assuming other factors stay the same). While tax savings can also improve cash flow by reducing actual cash taxes paid, the direct and clearest impact described here is the rise in net earnings. The other options misstate the effect: a tax cut does not increase expenses and does generally not leave cash flow unchanged.

Tax reductions lower tax expense, which directly boosts net earnings (net income). Since net earnings equal revenue minus all expenses, a reduction in taxes leaves more of the company’s profits after taxes, increasing the bottom line by the amount of the tax savings (assuming other factors stay the same). While tax savings can also improve cash flow by reducing actual cash taxes paid, the direct and clearest impact described here is the rise in net earnings. The other options misstate the effect: a tax cut does not increase expenses and does generally not leave cash flow unchanged.

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