Reference no: EM131922215

Max Bialystock and Leo Bloom own and operate a theatrical production company. Their upcoming play will cost $7,200,000 in up-front costs to produce, plus $25,000 each time the play is performed. Average gross revenue per performance is $50,000. The number (N) of performances before the play closes depends on the quality of the play chosen by the producers. A high quality play will run for many years; a flop will close in one night. The average Bialystock and Bloom play runs for 319 performances.

a. What is the play's break-even point?

b. To help finance of the venture, Bialystock and Bloom sell 1% of the future gross revenue stream to an outside investor for $120,000. How many performances must be performed for an outside investor to break-even in accounting terms?

c. Suppose that Bialystock and Bloom sell 1% of future gross revenues to 80 different investors (80% in total) for $120,000 each. What is an outside investor's expected accounting profit or loss from the $120,000 investment?