Cash flow impacts on FIFO vs LIFO

CFA Level I FRA
#1

I ran into a mock question that asked about if changing from FIFO to LIFO, how it impacts cash flow.

The answer said no impacts on cash flow. However, I though the tax expense would change which would impact cash flow?

#2

Indirect method: It is because the impact is neutralized by the Lower Net income (decreases CFO) and the lower changes in inventory (increases CFO).

Best of luck tomorrow

#3

No pre-tax change in cash flow; after-tax cash flow will likely change.

#4

After tax cash flow is higher under LIFO (and hence the preponderance of LIFO in the US - where it is still allowed).

#5

Only if costs are rising.