Main Line Pictures, Inc. vs Kim Basinger
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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 Basinger had been in negotiation with Main Line to star in the film, "Boxing Helena" but had withdrawn from the project.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.
Address the following items will be assessed in particular:
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.
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This solution discusses the case of Main Line Pictures vs Kim Basinger.
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Basinger Vs Main Line
Answer 1
a) The domestic distribution revenues of $3 million are the estimation of future cash flows. The maximum and minimum lost profit amount for Main Line should not be revised downward as it represents a reasonable estimation of the cash flows for future time period. It is because; deal had not been finalized so the distribution revenue is just an approximation. It should be considered but should not written down for the analysis Main Line's maximum and minimum profit lost.
b) The $800,000 is also the reasonable estimation of future cash flows from foreign sales as it was in the first situation. So, the maximum and minimum amounts of lost profit should not be revised as cash flows from foreign sales are based on potential contract that is not finalized.
c) The loss of $2.1 million for without Basinger film should be adjusted to revise the maximum and minimum lost profit amounts. It is because; under the law, it is the duty of Main Line to minimize its losses. It is also called as the doctrine for avoidable consequences (Slovenko, 2002). The other reason is that, it doesn't includes the going out and making a film after knowing that it may be short of $2.1 million. The expectation of loss for great amount provides a reasonable thinking that main line would not proceed to make movie with this loss. Basinger would not be responsible for this loss as it is based on the expected sales versus budgeted cost for Main Line.
Answer 2
a) Basinger's $3 million salary for final analysis is not relevant to determine the lost profits for Main Line. It is because; this is an opportunity ...
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