CVP, movie production. (10 minutes) 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 EUR 5 million. All the production personnel and actors on Jornado received a fixed salary (included in the EUR 5 million)

and will have no ‘residual’ (equity interest) in the revenues or operating income from the movie. Artes e Media, Lda, will handle the marketing of Tornado. Media agrees to invest a minimum EUR 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, Lda).

REQUIRED 1.

Pa What is the breakeven point to Espasso for Tornado expressed in terms of

(a) revenues received by Espasso, and

(b) total box-office receipts?

Assume in its first year of release, the box-office receipts for Tornado total EUR 300 million. What is the operating income to Espasso from the movie in its first year?  lop1