Appendix, uncertainty, CVP. Angela King is the Las Vegas promoter for Mike Foreman.

King is promoting a new world championship fight for Foreman. The key area of uncer¬

tainty is the size of the cable pay-per-view TV market. King will pay Foreman a fixed fee of $2.4 million and 25% of net cable pay-per-view revenue. Every cable TV home receiving the event pays $35.94, of which King receives $19.20. King pays Foreman $4.80, 25% of the $19.20.
King estimates the following probability distribution for homes purchasing the payper-view event:
Demand Probability 100,000 0.05 200,000 0.10 300,000 0.30 400,000 0.35 500,000 0.15 1,000,000 0.05 Required 1. What is the expected value ofthe payment King will make to Foreman?
2. Assume the only uncertainty is over cable TV demand for the fight. King wants to know the breakeven point given her own fixed costs of $1.2 million and her own variable costs of $2.40 per home. (Also include King’s payments to Foreman in your answer.)
PROBLEMS