Problem 1 A study of past productions indicates that the producer can expect revenues from sales of television rights to be approximately one-eight (12.5%%) of producer's revenues from theater admissions. VIVA's VIVA Incorporated, a leading producer of movies is currently negotiating with Robin Padilla, the biggest president is pleased with the opportunity to lover the fixed payment part of the contract but is box-office attraction in the movie industry, to star in an adventure film. For a starring role, Robin concerned about the magnitude of the two off-the-top percentages. normally receives a salary of $20,000,000 plus 5% of the receipts to the producer. (The producer normally receives 40% of the total paid admissions wherever the movie is shown). However, Robin is quite optimistic about the prospects for the film and has expressed some interest in a special contract Required: that would give him only 25% of his normal salary but increases his portion of the receipts to the producer to 209%. Other than Robin's pay, costs of producing the picture are expected to be 1. At what level of receipts to the producer will VIVA break even under the new contract proposal? $45,000,000.00. 2. Considering the additional information about the sale of television rights, at what level of receipts to the producer will VIVA break even under Robin's normal contract terms ($20,000,000 plus 5% of the producer's receipts)? Required: 3. Assume that, because of VIVA' delay in accepting the contract offer, Robin's agent decides that his client should also receive a percentage of the revenues VIVA will derive from the sale of Answer the following questions, calling the alternative compensation schemes N (for the normal screening rights in foreign countries, revenues which typically amount to 20%% of domestic contract) and S (for the special contract). receipts. If the agent proposed a 5% of those revenues for Drift, what is the breakeven pointfor 1. What are the breakeven receipts to the producer under each of the compensation schemes? VIVA Incorporated? If total paid admissions in theaters are expected to be $200,000,000.00, what will be the income to the producer under compensation schemes N & 5? 3. At what level of receipts to the producer would Robin earn the same total income under compensation schemes N & S? Problem 2 Both the producing company and prospective star has given further thought to the contract terms and concluded that some provision probably should be made for revenues to be earned from contracts, authorizing showings of the movie on television. After lengthy negotiations, Robin's agent proposed the following terms: (a) a payment of $10,000,000.00, plus (b) 15% of receipts to the producer from theater admissions, plus (c) 10%% of revenues from sales on television rights. VIVA' negotiating team leaves the negotiations to study the potential effect of the new offer