Say that you are the owner of a firm like the local H&R Block and you are deciding the timing of an expenditure of $75,000 on new computers. You will buy the computers with your own internally generated funds. The computers will increase your before-tax operating profit by $32,000 per year for three years, after which they are valueless. Each year’s profit accrues at the end of the year. Suppose that your tax rate is 40 percent. In 2014, Section 179 of the IRS code allowed you to claim a special depreciation allowance of up to $500,000 of an investment in the first year of operation.

However, the law specified that in 2015 and thereafter you could take the special depreciation allowance only up to $25,000 but you could take it in the first, second, and third years. Your discount rate is 9 percent per year. Should you purchase the computers on December 31, 2014, or on January 1, 2015? Explain your answer.