Angela Brady is considering promoting a world championship fight for boxer Mike Foreman. Brady will receive $16 for every cable-TV home that subscribes to the event. She will pay Foreman 25% of each $16 fee and a fixed fee of $2 million. In addition, she will incur fixed costs of $1 million and variable cost of $2 per cable-TV home that subscribes to this event. All ticket revenues from the fight go to the operator of the casino where the fight will take place.
The pay-per-view audience for such an event is uncertain, but Brady estimates the following probability distribution for it:

If you want to use Excel to solve this exercise, go to the Excel Lab at www.prenhall.com/horngren/ cost12e and download the template for Exercise 3-32.
1. What is the expected payment Brady will make to Foreman?
2. If the only uncertainty is the size of the pay-per-view audience, what is the breakeven number of subscriber homes?
3. Based on the expected audience size, would you recommend Brady proceed with the plans for the fight?

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Pay-per-view Audience number ofhomes 1 subscribing to the event) Probability 100,000 200,000 300,000 400,000 00,000 0.05 0.10 0.30 0.35 0.15 0.05 71,000,000