A British television production company, RIP Lizzy, is producing a new TV series they want to sell to an American content distributor. They are targeting HBO, Netflix, or Amazon Prime. They need to figure out the lowest price they can accept to make a 21% return on their series.

 

Conditions and Information

• The series will run 8 episodes each season for 5 seasons.
• The actor's salary total $1.3m per episode.
• RIP Lizzy has fixed costs of $190,000 per year.
• The operational costs (variable) to build and film scenes is $800,000 per episode.
• RIP Lizzy need editing and filming equipment totaling $1,500,000 that will be depreciated straight-line to zero-salvage over the five years.
• They can sell the equipment for $300,000 at the end of the fifth year.
• They also need to invest $110,000 in working capital to cover daily expenses and actor requests (e.g., food, make-up, and wardrobe).
• The relevant tax rate is 18%.

Answer rating: 100% (QA)

To calculate the lowest price RIP Lizzy can accept to make a 21 return on their TV series we need to consider the costs and revenues associated with t... View the full answer