Reference no: EM132762806

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).

Problem 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?

Problem 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?