Appendix, uncertainty, CVP. (15-20 minutes) Kristina Larsson is the Stockholm promoter for Gustav Haglund. Larsson is promoting a new world championship fight for Haglund. The key area of uncertainty is the size of the cable pay-per-view TV market. Larsson will pay Haglund a fixed fee of SKr 2 million and 25% of net cable pay-per-view revenue. Every cable TV home receiving the event pays SKr 29.95, of which Larsson receives SKr 16. Larsson pays Haglund 25% of the SKr 16.

Larsson estimates the following probability distribution for homes purchasing the pay-per-view event: lop1

REQUIRED 1. What is the expected value of the payment Larsson will make to Haglund?
2. Assume the only uncertainty is over cable TV demand for the fight. Larsson wants to know the breakeven point given her own fixed costs of SKr | million and her own variable costs of SKr 2 per home. (Also include Larsson’s payments to Haglund in your answer.)

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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