Assume the $179 deduction is $1,000,000 and the phaseout threshold is $2,500,000 for all years involved. Assume a corporate tax rate of 21%.

Serendipity Co. is considering purchasing $4,000,000 of manufacturing equipment (7-year MACRS life) within a 3-month period, to minimize the installation costs. Serendipity would like to maximize its cost recovery tax benefit from these assets over the next 2 years. No other assets will be purchased during these 2 years. Serendipity currently has taxable income of $5,000,000 and expects 12% yearly growth in its taxable income for at least the next 7 years. No bonus depreciation will be taken. Since Serendipity wants to acquire the assets within a 3-month period, there are three possible purchase options:

1. Purchase all of the assets in the third quarter of the current year (year 1).

2. Purchase all of the assets in the fourth quarter of the current year (year 1).

3. Purchase some of the assets in the fourth quarter (year 1) and some in the first quarter of the next year (year 2) but still within the 3-month window.

In determining which option to select, Serendipity should consider the tax savings received over the 2 years.

Which option will provide the greatest tax savings over the next two years? SHOW YOUR WORK TO RECEIVE FULL CREDIT! Include the tax savings associated with each of the three purchase options to support your decision.