In 1991, Main Line Pictures, Inc. sued actress Kim Basinger (and others) for breach of contract. Basinger had been in negotiation with Main Line to star in the film, "Boxing Helena" but had withdrawn from the project. The suit was heard in early 1993 in the Superior Court of the State of California, for the County of Los Angeles.
An analysis of plaintiff and defendants arguments as indicated below. Support your answers with financial computations where appropriate. Module 3 is an expansion on the contribution margin. So you can use CM income statement supporting your answers.
1) Should Main Line's maximum and minimum lost profit amounts be revised downward for the following? Why?
a. The domestic distribution revenues of $3 million because the deal had not been finalized.
b. The $800,000 of foreign pre-sales because they were "probable" not actual.
c. The loss of $2.1 million on the "Without Basinger" film.
2) Are the following relevant to the determination of lost profits to Main Line? Why?
a. Basinger's $3 million salary for "Final Analysis."
b. The comparison of revenues for Basinger films with revenues for Fenn films.
3) Is plaintiff's expert correct in not attempting to estimate revenues for "Boxing Helena" beyond pre-sale amounts? Why?
4) Should Main Line's lost profits be adjusted downward to include an estimate of domestic revenues for the "Without Basinger" film? Would it have been valid to use the $1.7 million advance against domestic revenues as the estimate? Explain.
5) Suppose Basinger had remained with the film and assume the $3 million profit shown in the plaintiff expert's minimum damage calculation was correct. Is it reasonable to assume that Main Line's pretax cash position would have increased by $3 million or would some part of this have been paid to others? Why?
6) If you disagree with the jury's lost profit assessment, briefly prepare one of your own.