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In the period when a firm makes an expenditure, capitalizing the expenditure instead of recognizing it as an expense will result in higher:

A net income and have no effect on total cash flows.

Net income is higher with capitalization because it does not decrease by the full amount spent, as it would with expensing. Capitalizing an expenditure changes its cash flow classification from an operating cash outflow to an investing cash outflow. As a result, CFO is higher and CFI is lower than they would be if the expenditure had been immediately expensed. Total cash flow, however, is unaffected (assuming the tax treatment of the expenditure is independent of the financial reporting treatment). Equity is higher in the period of the expenditure with capitalization. Assets are higher because they include the capitalized asset. Debt is unaffected by the decision to capitalize or expense. Thus, the debt-to-equity and debt-to-assets ratios are lower with capitalization.

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