Question

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.

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 president is pleased with the opportunity to lover the fixed payment part of the contract but is concerned about the magnitude of the two off-the-top percentages.

Required:

1.At what level of receipts to the producer will VIVA break even under the new contract proposal?

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)?

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 screening rights in foreign countries, revenues which typically amount to 20% of domestic receipts. If the agent proposed a 5% of those revenues for Drift, what is the breakeven point for VIVA Incorporated?