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Financial management : Gus Van Sant vs. Johnny Depp

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  1. Scenario 1 - Continue making the film with Van Sant as the director
    1. Costs : movie, marketing, production, etc.
    2. Salary
    3. Net Present Value (NPV)
  2. Scenario 2 - Continue making the film with Depp as the lead actor
    1. Costs : movie, marketing, production, etc.
    2. Salary
    3. Net Present Value (NPV)
  3. Analysis

You have just been hired to take over as the CFO of a major US film studio. Your first project is to make a recommendation on a project that has been plagued with problems from the start. Here is the history of the project: Three years ago, the development department bought the movie rights to the best selling novel "Cloudburst? for $1,000,000 (estimated to be worth $2,000,000 today). The idea was to take the rights off the market so that no other film studio could get them, since it was a highly sought after book. About a year later, one of the star directors of the studio, Gus Van Sant, became interested in further developing the project into a feature length film. The studio let him work on the story and promised to pay him $2,000,000 to direct it, but only if the film is completed. At this point, the studio approached Johnny Depp, who agreed to star in the movie, and he was paid $5,000,000 immediately. He was to receive another $5,000,000 once he completed the movie. He also insisted that Juliette Binoche, with whom he had enjoyed a good working relationship in an earlier film, play the female lead. The studio agreed to hire her for $7,000,000 to be paid upon completion of the film. Filming began on the project and has continued for a year, and up until now, the total cost incurred is $60,000,000, not including any actors' salaries. Van Sant and Depp, however, can no longer work together. The head of the studio wants the studio to remain on good terms with both Van Sant and Depp. Consequently, it has turned to you, the CFO, to make a purely financial recommendation.

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