Reference no: EM132536137
VIVA Incorporated, a leading producer of movies is currently negotiating with Robin Padilla, the biggest box-office attraction in the movie industry, to star in an adventure film. For a starring role, Robin 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 that would give him only 25% of his normal salary but increases his portion of the receipts to the producer to 20%. Other than Robin's pay, costs of producing the picture are expected to be $45,000,000.00.
Required:
Answer the following questions, calling the alternative compensation schemes N (for the normal contract) and S (for the special contract).
Question 1. What are the breakeven receipts to the producer under each of the compensation schemes?
Question 2. 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 & S?
Question 3. At what level of receipts to the producer would Robin earn the same total income under compensation schemes N & S?
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