Espasso SA has just finished production of Tornado, the latest action film directed by Domingos Vieira and starring Arnaldo Moura and Victoria Rebello. The total production cost to Espasso was €5 million. All the production personnel and actors on Tornado received a fixed salary (included in the €5 million) and will have no 'residual' (equity interest) in the revenues or operating income from the movie. Artes e Media Ltda will handle the marketing of Tornado. Media agrees to invest a minimum €3 million of its own money in marketing the movie and will be paid 20% of the revenues Espasso itself receives from the box-office receipts. Espasso receives 62.5% of the total box-office receipts (out of which comes the 20% payment to Artes e Media).
Required
1. What is the breakeven point to Espasso for Tornado expressed in terms of
(a) Revenues received by Espasso,
(b) Total box-office receipts?
2. Assume in its first year of release, the box-office receipts for Tornado total €300 million. What is the operating income to Espasso from the movie in its first year?