As a theater manager, you are thinking of opening a Broadway play, I love You, You’re Mediocre, Now Get Better! It will cost $5 million to develop the show. There are 8 shows per week (assume there is at least one show each day of a week), and you plan to run the show for 100 weeks. It costs $1000 to open the theater each day. Each ticket sells for $50.00. The theater has 800 seats in total, and you expect 80% of the seats to be filled.
a. Calculate the total profit and return on investment (the total profit divided by development cost). [3 points]
b. Depending on economic conditions in the future, you think two additional scenarios are worth consideration. Under a pessimistic scenario, the economy recession will get deeper, and the theater cost per night would be cheaper, at $800, but the ticket price will have to be lower too, at $40, along with a lower percentage of seats filled, 70%. Under an optimistic scenario, the economy will recover shortly, and then you expect the theatre cost per night to be $1100, ticket price be $55, and the percentage of seats filled 90%. Compare the results under these two scenarios with your result in Question (a). [2 points]
c. How does an increase in the percentage of seats filled affect profit? Perform a sensitivity analysis to show how the profit changes as the percentage of seats filled varies from 0 to 100%. [2 points]
d. You may choose to run the show for 20 to 120 weeks. Investigate how a joint change in the percentage of seats filled and number of weeks the play runs influences the profit. Discuss the insights from your results. [2 points]
e. Return to the base parameter setting in Question (a). How many weeks will the show have to run for you to achieve a 100% return on investment? [1 point
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As a theater manager, you are thinking of opening a Broadway play, I love You, You’re Mediocre, Now...
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