You must decide when to go on a vacation. One option is right after graduation. The other option is to wait and go after spending 2 years with the Peace Corps. Assume the vacation costs $2500 now, and your annual income tax rate is 20% now, and is expected to continue to be 20% during the next 2 years. Also assume the annual inflation rate for a week's trip to Hawaii (hotel included) is 4%.
(a) Calculate the additional money you could spend on your vacation, after taxes, by putting your vacation money ($2500) into a taxable investment at 6% per year (before taxes) and waiting 2 years until after you come out of the Peace Corps compared to taking your welldeserved vacation now.
(b ) If your tax rate drops to 0% while you're in the Peace Corps, how much additional money will you have for your vacation? Contributed by D. P. Loucks, Cornell University