10-13 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.

10-15. Artistic Adobes is considering growing its business by adding a paint machine that costs $90,000. The machine will generate an additional $29,800 in before-tax operating income (excluding depreciation) for the next five years. At the end of five years, the machine can be sold for $8,000. The machine will be depreciated according to the MACRS 3-year class of assets. Artistic's marginal tax rate is 34 percent, and its required rate of return is 15 percent. Should Artistic purchase the machine?