Pioneer Films has just finished a production of Sharknado 5, the latest action film directed by John Favreau and starring Ian Ziering, Tara Reid and George Clooney. The total production cost was $5million. All the production personnel and actors on Sharknado 5 received a fixed salary (included in the $5 million) and will have no "residual" (equity interest) in the revenues or operating income from the movie. Daniels Communications will handle the marketing of Sharknado 5. Daniels agrees to invest a minimum of $3 million of its own money in marketing the movie and will be paid 20% of the revenues Pioneer itself receives from the box-office receipts. Pioneer receives 62.5% of the total box-office receipts (out of which comes the 20% payment to Daniels).
1. What is the breakeven point to Pioneer for Sharknado 5 expressed in terms of (a) revenues received by Pioneer and (b) total box-office receipts?
2. Assume in its first year of release, the box-office receipts for Sharknado 5 total $300 million. What is the operating income to Pioneer from the movie in its first year?
A year goes by and Pioneer is negotiating for Sharknado 6, the thrilling sequel to the mega-blockbuster Sharknado 5. The negotiation is proving more difficult than the original movie. The budgeted production cost (excluding payments to the director Favreau and the stars Reid and Ziering) for Sharknado 6 is $21 million. The agent negotiating for Favreau, Reid and Ziering proposes either of two contracts:
Contract A: Fixed-salary component of $15 million for Favreau, Ziering and Reid (combined) with no residual interest in the revenues from Sharknado 6.
Contract B: Fixed-salary component of $3million for Favreau, Ziering and Reid (combined) plus a residual of 15% of the revenues Pioneer received from Sharknado 6.
Daniels will market Sharknado 6. It agrees to invest a minimum of $10 million of its own money. Because of its major role in the success of Sharknado 5, Daniels will now be paid 25% of the revenues Pioneer received from the total box-office receipts. Pioneer receives 62.5% of the total box-office receipts (out of which comes the 25% payment to Daniels).
3. What is the breakeven point for Pioneer expressed in terms of (a) revenues received by Pioneer and (b) total box-office receipts for Sharknado 6 for CONTRACTS A AND B? Explain the difference between the breakeven points for contracts A and B.
4. Assume Sharknado 6 achieves the same $300 million in box-office revenues as Sharknado 5. What is the operating income to Pioneer from Sharknado 6 if it accepts Contract B? Discuss the difference in operating income between the two films.
Answers/Work I have:
1)
For Breakeven, the total inflow shall be $5,000,000 (Cash contributed by Pioneer)
revenue received is 1-0.20 or 80% (since we are only looking at pioneer (1))
Total revenue = 5 million/0.80=$6.25 million or $6,250,000
Total box office receipts are :B*0.625=$6,250,000
B=10 million or $10,000,000
2)
For 300 million = 300*0.625*0.80=$150 million
I am stuck on getting started on 3 and 4, maybe it is the wording?
3) Breakeven Point
For Option A:
For Break even, the total inflow shall be $($21,000,000+ $15,000,000) (Cash contributed by Pioneer)
revenue received is 1-0.25 or 75% (since we are only looking at pioneer (1))
Total revenue = 36 million/0.75=$48 million or $ 48,000,000
Total box office receipts are :B*0.625=$48,000,000
B=76.80 million or $ 76,800,000
For Option B:
For Break even, the total inflow shall be $($21,000,000+ $3,000,000) (Cash contributed by Pioneer)
revenue received is 1-0.25-0.15 or 60% (since we are only looking at pioneer (1))
Total revenue = 24 million/0.60=$40 million or $ 40,000,000
Total box office receipts are :B*0.625=$40,000,000
B=64.00 million or $ 64,000,000
Breakeven Point is better For Option B because Fixed Cost is less in option B in compare to Option A
4. Operating Income = For 300 million = 300*0.625*0.60=$ 112.50 million
Operating Income is less in Sharknado 6 in comparision to Sharknado 5 due to variable cost is increased and total revenue remains the same.
Pioneer Films has just finished a production of Sharknado 5, the latest action film directed by...
A movie company is making a new film. For the main role, they hired Johhny and he will receive a salary of $20,000,000 + 5% from admissions. The producer normally receives 40% of total paid admission whenever the movie is shown. Cost of production is $45,000,000. Also, a study of past films indicates that the producer can expect revenues from TV rights to be 12.5% of the producer's revenues from admissions.Questions:a) Considering the additional information about the sale of television rights, at what level of receipts...
Blockbusters Incorporated, a leading producer of movies, is currently negotiating with Liam Goodlooking, the biggest box-office attraction in the movie industry, to star in an adventure film. For a starring role, Liam 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, Liam is quite optimistic about the prospects of the film and has expressed some interests in a special...
Forrest Gump was one of the biggest movie hits of 1994. The movie’s fortunes continued to climb in 1995, as it took home Oscars in six of 13 categories in which it was nominated, including best picture, best director, and best actor. One analyst has estimated that the film could generate cash flow as much as $350 million for Viacom, Inc., Paramount Pictures’ parent company. Such success has insured the film a place among the top grossing films of all...
f Practice Problems 1. The Columbia Arena Company Formed in 2015 and uses the accrual basis of accounting. Using the company's 2015 budget, provided in Exhibit 6.10, develop a pro forma operating budget for 2016 based on the following revenue and expense estimates. Answer A and B Practice Problem 2 After you have calculated the 2016 budget, suppose your boss asks you to revise it so that overall revenues increase by 4% and operating expense decrease by 1.5% Answer A...
Caterpillar Inc. 2017 2016 5 S 51,822 2,900 54,722 42,676 2,786 45,462 35,773 2,764 38,537 STATEMENT 1 Consolidated Results of Operations for the Years Ended December 31 Dollar is willions cat pershare dal Sales and revenues Sales of Machinery, Energy & Transportation Revenues of Financial Products Total sales and revenues Operating costs Cost of goods sold Selling, general and administrative expenses Research and development expenses Interest expense of Financial Products Goodwill impairment charge Other operating incomel expenses Total operating costs...
Reading and Interpreting 12-4 a1, bi, ci, d Cineplex Inc. is the largest movie exhibition company in Canada. It operates theatres in 10 provinces across Canada. The company's financial statements are presented in Exhibits 12.13A to 12.13C. EXHIBIT 12.13A Cineplex Inc.'s 2016 Consolidated Balance Sheets CINEPLEX INC. Consolidated Balance Sheets (expressed in thousands of Canadian dollars) December 31, 2016 December 31, 2015 $ $ Assets Current assets Cash and cash equivalents (note 3) Trade and other receivables (note 4) Income...
JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Dollars and Shares in Millions Except Per Share Amounts) (Note 1)* 2016 71,890 21,789 50.101 20,067 9.143 29 Sales to customers Cost of products sold Gross profit Selling, marketing and administrative expenses Research and development expense In-process research and development Interest income Interest expense, net of portion capitalized (Note 4) Other (income) expense, net Restructuring (Note 22) Eamings before provision for taxes on income Provision for taxes on income (Note 8)...
JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Dollars and Shares in Millions Except Per Share Amounts) (Note 1)* 2016 71,890 21,789 50.101 20,067 9.143 29 Sales to customers Cost of products sold Gross profit Selling, marketing and administrative expenses Research and development expense In-process research and development Interest income Interest expense, net of portion capitalized (Note 4) Other (income) expense, net Restructuring (Note 22) Eamings before provision for taxes on income Provision for taxes on income (Note 8)...
JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Dollars and Shares in Millions Except Per Share Amounts) (Note 1)* 2016 71,890 21,789 50.101 20,067 9.143 29 Sales to customers Cost of products sold Gross profit Selling, marketing and administrative expenses Research and development expense In-process research and development Interest income Interest expense, net of portion capitalized (Note 4) Other (income) expense, net Restructuring (Note 22) Eamings before provision for taxes on income Provision for taxes on income (Note 8)...
JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Dollars and Shares in Millions Except Per Share Amounts) (Note 1)* 2016 71,890 21,789 50.101 20,067 9.143 29 Sales to customers Cost of products sold Gross profit Selling, marketing and administrative expenses Research and development expense In-process research and development Interest income Interest expense, net of portion capitalized (Note 4) Other (income) expense, net Restructuring (Note 22) Eamings before provision for taxes on income Provision for taxes on income (Note 8)...