operating cash flows

Cool Cat Cabinets (CCC) is evaluating whether to replace its aging lathe. The existing lathe is being depreciated at $40,000 per year, whereas the depreciation for a new lathe is expected to be $35,000 per year. CCC’s operating income, excluding depreciation, is expected to be $90,000 no matter which lathe is used. The firm’s marginal tax rate is 40 percent. If the new lathe 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.