Net income and supplemental operating cash flows

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Reference no: EM131513734

Cool Cat Cabinets (CCC) is evaluating whether to replace an aging machine. The existing machine is being depreciated at $40,000 per year, whereas the depreciation for a new machine is expected to be $35,000 per year. CCC’s operating income, excluding depreciation, is expected to be $90,000 no matter which machine is used. The firm’s marginal tax rate is 40 percent. If the new machine is purchased, what effect will the change in depreciation have on the firm’s (a) net income and (b) supplemental operating cash flows. CCC has no debt.

Reference no: EM131513734

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