Instructions: Solve the following problems in Excel. Submit your Excel files.

Broadway Play
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, and you project the show will run for 100 weeks. It costs $1000 to open the
theater each night. Tickets sell for $50.00, and you earn an average of $1.50 profit
per ticket holder from concessions. The theater holds 800, and you expect 80% of
the seats to be full.
a. Given your other assumptions, how many weeks will the play have to
run for you to earn a 100% return on the play’s development cost?
b. Given your other assumptions, how does an increase in the percentage
of seats full affect profit?
c. Given your other assumptions, determine how a joint change in the
average ticket price and number of weeks the play runs influence profit.
d. Use Excel’s Formula Auditing tools to show which cells in the
spreadsheet are directly affected by the percentage of seats full.

Program Translation1
A software company is considering translating its program into French. Each
unit of the program sells for $50 and incurs a variable cost of $10 to produce.
Currently, the size of the market for the product is 300,000 units per year, and the
English version of the software has a 30% share of the market. The company
estimates that the market size will grow by 10% a year for the next five years,
and at 5% per year after that. It will cost the company $6 million to create a
French version of the program. The translation will increase its market share to
40%. Given a 10-year planning horizon, for what discount rates is it profitable to
create the French version of the software?

Market Planning
You are entering the widget business. It costs $500,000, payable in year 1, to
develop a prototype. This cost can be depreciated on a straight-line basis during
years 1–5. Each widget sells for $40 and incurs a variable cost of $20. During year
1, the market size is 100,000, and the market is growing at 10% per year. You

1
Based on 2-21, 2-35 and 2-45 (p. 62, 64 and 65) in Practical Management Science (4th ed.,
Winston and Albright, 2012 Duxbury Press).
believe you will attain a 30% market share. Profits are taxed at 40%, but there are
no taxes on negative profits.
a. Given your other assumptions, what market share is needed to ensure a
total free cash flow (FCF) of $0 over years 1 to 5? (Note: FCF during a year
equals after-tax profits plus depreciation minus fixed costs, if any.)
b. Explain how an increase in market share changes profit.
c. Explain how an increase in market size growth changes profit.
d. Use Excel’s auditing tool to show how the market growth assumption
influences your spreadsheet.

B60.2350 2 Prof. Juran