Assume Mitsubishi Chemical is evaluating a proposal to purchase a new compressor that would cost $200,000 and have a salvage value of $20,000 in five years. Mitsubishis cost of capital is 16%. It would provide annual operating cash savings of $22,500, as follows: Old Compressor New Compressor Salaries $60,000 $75,000 Supplies 12,000 7,500 Utilities 23,000 15,000 Cleaning and maintenance 35,000 10,000 Total cash expenditures $130,000 $107,500 If the new compressor is purchased, Mitsubishi will sell the old compressor for its current salvage value of $60,000. If the new compressor is not purchased, the old compressor will be disposed of in five years at a predicted scrap value of $6,000. The old compressors present book value is $85,000. If kept, the old compressor will require repairs one year from now predicted to cost $75,000. a. Use the total cost approach to evaluate the alternatives of keeping the old compressor and purchasing the new compressor. Indicate which alternative is preferred. A. Net present value of operating costs of keeping old compressor: $Answer B. Net present value of purchasing and operating new compressor: $Answer Net savings of Answer purchasing new compressor $Answer b. Use the differential cost approach to evaluate the desirability of purchasing the new compressor. Note: There may be slight differences between your answers in part a and part b due to rounding. Note: Round each of your answers below to the nearest whole dollar. Present Value Predicted of Cash Inflows (Outflows) Cash Flows Initial investment: Answer Answer Operations Answer Answer Repairs on old Answer Answer Disinvestment Answer Answer Net present value of costs Answer Net savings of Answer purchasing new compressor $