The MP Organisation is an independent film production company. It has a number of potential films...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
The MP Organisation is an independent film production company. It has a number of potential films that it is considering producing, one of which is the subject of a management meeting next week. The film which has been code named CA45 is a thriller based on a novel by a well respected author. The script has already been written at a cost of $10,000 and preliminary discussions have been held with the lead actors. The MP Organisation has incurred travel and other incidental costs of $4,000 to date. The following additional costs have been estimated in order to produce the film: Production director's fee Set design Costumes and wardrobe Actors' fees Musician/Songwriter for soundtrack Camera and equipment hire Actors' travel and accommodation costs Other production costs 5 $000 100 2222 10 20 50 20 10 Production of the film is estimated to take 16 weeks, and all of the above costs would be incurred during this period, though there is some uncertainty about the accuracy of these cost estimates. These cost values are those most likely to be incurred. With the exception of the payment to the production director, which is a fixed fee, the other costs could be up to 10% higher or lower than the values estimated. In addition, there will be advertising, promotion and marketing costs of $15,000 immediately, $10,000 in each of years 1 and 2, and then $5,000 during each of the next three years. These figures are not subject to any uncertainty. The film is expected to have a life of five years. During the first three years the film will be sold to cinemas through distributors and MP will receive 25% of the gross revenues. The film will be sold as a DVD for the remaining two years and MP will receive 100% of these revenues. The expected gross revenues are as follows: k Camera and equipment hire Actors' travel and accommodation costs Other production costs 5 Production of the film is estimated to take 16 weeks, and all of the above costs would be incurred during this period, though there is some uncertainty about the accuracy of these cost estimates. These cost values are those most likely to be incurred. With the exception of the payment to the production director, which is a fixed fee, the other costs could be up to 10% higher or lower than the values estimated. In addition, there will be advertising, promotion and marketing costs of $15,000 immediately, $10,000 in each of years 1 and 2, and then $5,000 during each of the next three years. These figures are not subject to any uncertainty. The film is expected to have a life of five years. During the first three years the film will be sold to cinemas through distributors and MP will receive 25% of the gross revenues. The film will be sold as a DVD for the remaining two years and MP will receive 100% of these revenues. The expected gross revenues are as follows: Year 1 20 10 2345 Source Cinema Cinema Cinema DVD DVD Gross revenue $400,000 $600,000 $450,000 $50,000 $30,000 MP's share 25% 25% 25% 100% 100% However, it is thought that the gross revenues could vary by as much as 20% higher or lower than those stated, depending on the popularity of the film. The initial level of popularity will continue for all five years. The MP Organisation evaluates new films using a cost of capital of 15% per year. Required: (a) Prepare calculations for each combination of the most likely, optimistic and pessimistic cost and revenue values to evaluate whether or not the MP Organisation should continue with the production of the film. Discuss your analysis and make a recommendation to MP. (15) (b) Prepare notes for the management meeting that explain how probabilities can be used (i) to calculate the expected NPV; and (ii) in a simulation model to evaluate the risk of a long-term decision. (10) The MP Organisation is an independent film production company. It has a number of potential films that it is considering producing, one of which is the subject of a management meeting next week. The film which has been code named CA45 is a thriller based on a novel by a well respected author. The script has already been written at a cost of $10,000 and preliminary discussions have been held with the lead actors. The MP Organisation has incurred travel and other incidental costs of $4,000 to date. The following additional costs have been estimated in order to produce the film: Production director's fee Set design Costumes and wardrobe Actors' fees Musician/Songwriter for soundtrack Camera and equipment hire Actors' travel and accommodation costs Other production costs 5 $000 100 2222 10 20 50 20 10 Production of the film is estimated to take 16 weeks, and all of the above costs would be incurred during this period, though there is some uncertainty about the accuracy of these cost estimates. These cost values are those most likely to be incurred. With the exception of the payment to the production director, which is a fixed fee, the other costs could be up to 10% higher or lower than the values estimated. In addition, there will be advertising, promotion and marketing costs of $15,000 immediately, $10,000 in each of years 1 and 2, and then $5,000 during each of the next three years. These figures are not subject to any uncertainty. The film is expected to have a life of five years. During the first three years the film will be sold to cinemas through distributors and MP will receive 25% of the gross revenues. The film will be sold as a DVD for the remaining two years and MP will receive 100% of these revenues. The expected gross revenues are as follows: k Camera and equipment hire Actors' travel and accommodation costs Other production costs 5 Production of the film is estimated to take 16 weeks, and all of the above costs would be incurred during this period, though there is some uncertainty about the accuracy of these cost estimates. These cost values are those most likely to be incurred. With the exception of the payment to the production director, which is a fixed fee, the other costs could be up to 10% higher or lower than the values estimated. In addition, there will be advertising, promotion and marketing costs of $15,000 immediately, $10,000 in each of years 1 and 2, and then $5,000 during each of the next three years. These figures are not subject to any uncertainty. The film is expected to have a life of five years. During the first three years the film will be sold to cinemas through distributors and MP will receive 25% of the gross revenues. The film will be sold as a DVD for the remaining two years and MP will receive 100% of these revenues. The expected gross revenues are as follows: Year 1 20 10 2345 Source Cinema Cinema Cinema DVD DVD Gross revenue $400,000 $600,000 $450,000 $50,000 $30,000 MP's share 25% 25% 25% 100% 100% However, it is thought that the gross revenues could vary by as much as 20% higher or lower than those stated, depending on the popularity of the film. The initial level of popularity will continue for all five years. The MP Organisation evaluates new films using a cost of capital of 15% per year. Required: (a) Prepare calculations for each combination of the most likely, optimistic and pessimistic cost and revenue values to evaluate whether or not the MP Organisation should continue with the production of the film. Discuss your analysis and make a recommendation to MP. (15) (b) Prepare notes for the management meeting that explain how probabilities can be used (i) to calculate the expected NPV; and (ii) in a simulation model to evaluate the risk of a long-term decision. (10)
Expert Answer:
Answer rating: 100% (QA)
a Expected relevant production costs 220000 Present value of expected relevant production costs 220000 x 0870 191400 But there could be a 10 variation ... View the full answer
Related Book For
International Business
ISBN: 978-0133457230
15th edition
Authors: John Daniels, Lee Radebaugh, Daniel Sullivan
Posted Date:
Students also viewed these mathematics questions
-
Hearne Company has a number of potential capital investments. Because these projects vary in nature, initial investment, and time horizon, management is finding it difficult to compare them. Assume...
-
The following are ledger balances extracted from the books of Forte Enterprise at 31 December 2019. RM Capital 200,000 Office furniture and equipment at cost 89,000 Provision for depreciation -...
-
The finance director has two potential non-executive directors he is considering to join the board of Natco, a company in the banking sector. Les Thomas is currently an executive sales director of a...
-
Several industries located along the Ohio River discharge a toxic substance called carbon tetrachloride into the river. The state Environmental Protection Agency monitors the amount of carbon...
-
Define control speculation.
-
In an agricultural experiment, a large uniform field was planted with a single variety of wheat. The field was divided into many plots (each plot being 7 100 ft) and the yield (lb) of grain was...
-
Create a domain dictionary for an ATM system.
-
The accounting records of North East Distributors, Inc., reveal the following: Requirement 1. Compute cash flows from operating activities by the indirect method. Use the format of the operating...
-
Best Construction purchased a delivery truck on June 1 , 2 0 2 4 . The following information is available: Cost = $ 9 0 , 0 0 0 Estimated service life = 5 years Estimated residual value = $ 1 5 , 0 0...
-
Utilizing the financial information below for The Cookie Company, complete a budget performance report combining activity and revenue and spending variances like that in Exhibit Please be sure to...
-
Napaka CUTE Mohpoh Corp. shows the following amounts in the cost of goods sold statement and income statement for the year 2017 Materials Work-in-process Finished goods Materials used Cost of goods...
-
If you apply a force of 20 Newtons to a 2kg object for 15 seconds, how fast will it be moving at the end of that time? (you can assume it was motionless when you started)
-
The chief executive of a mid-sized manufacturing company has hired you to design the work site and any other conditions necessary for employees to feel more empowered. Describe three important...
-
1. What are undifferentiated targeting, concentrated targeting, and multi-segmented targeting? Please define these. Can you think of 3 products or services, that might use each one of these targeting...
-
Avondale Industries' training director conducted an employee survey and found that employees in several departments lacked trust and confidence in their supervisors. The director arranged for...
-
Customer Analysis: Who are they? What are their needs? What motivates them to buy? How do they perceive your selected company and product? Marketing Communication Mix: Research, describe and justify...
-
4x3 = 0 In Exercises 15-22, solve the given linear system by any method. 15. 2x1 + x2 + 3x3 = 0 16. 2xy 3z = 0 - 3z= x1 + 2x2 = 0 -x+2y3z = 0 x2+x3 = 0 x+y+4z = 0
-
You are maintaining a subsidiary ledger account for Police-Training Expenditures for 2013. The following columns are used: Inventory purchases are initially recorded as expenditures. Record the...
-
What marketing pitfalls might Danone face if it tries to duplicate its Bangladesh experience to serve BoP customers in other countries?
-
Look back in Chapter 1 to the factors in increased globalization and explain which have influenced the growth of world trade in cut roses and why?
-
Why is the Chinese government so hesitant to open up the yuan to market forces to determine its value inside and outside of China?
-
Explore whether the original Bell inequality can be violated at large angles as well.
-
Consider an EPR state \(|\phiangle_{A B}\); Alice measures the spin on \(z\), then Bob measures it on \(x\), and then Alice measures it again on \(z\). Classify the possible answers for the second...
-
Instead of the Bell-CHSH inequality in the text, consider an inequality obtained in the same way from \(\tilde{M}=\left(A+A^{\prime} ight) B^{\prime}+\left(A-A^{\prime} ight) B\) instead of \(M\). Is...
Study smarter with the SolutionInn App