Question

Ray has a music studio he runs from his house. Last quarter he raised $3000 is total services rendered. His expenses included $1000 for rent, $300 in utilities, $50 in interest on a loan he got from the bank and $200 in depreciation of his instruments. His tax rate is 40%. How much cash will Ray have to reinvest in his music studio?

Answer 1

$1,070

Step-by-step explanation:

As provided, the total revenue recorded in the previous quarter = $3,000

Total expenses as provided:

Rent expense = $1,000

Utilities = $300

Interest = $50

Depreciation = $200

Total = $1,550

Revenue after providing of all the expenses = $3,000 - $1,550 = $1,450

Less: Tax 40% of the amount $1,450 = $580

Net revenue = $870

Add: Depreciation = $870 + $200 = $1,070

Amount available for reinvestment = $1,070

Note: Depreciation is a non cash expense and shall be added to compute the amount available for reinvestment as that is not the cash spent.