Southern Company purchased a machine five years ago at JOD 7,500 with an expected useful time of fifteen years and zero salvage value at the end of useful life. The company is using the straight-line method to estimate depreciation expense.

The Operation Manager reported to the Chief Executive Officer that a new machine has been introduced to the market with a cost of JOD 12,000, a useful life of 10 years. This new machine would help the company to enhance operating activities, which would increase sales from JOD 60,000 to JOD 70,000 per year. The new machine would also increase operating expenses from JOD 10,000 to JOD 17,000 per year. The salvage value of the new machine will be JOD 2000 at end of useful life. If acquiring the new machine, the company can sell the old machine for JOD 1000. The new machine would also require JOD 1,000 as an additional net working capital at the beginning of operating activities.

Required:

The Chief Executive Officer of the company has asked you as a Financial Manager to recommend if the company should replace the existing machine with the new one. Knowing that the current tax rate is 34% and the discount rate is 10%.