a. The domestic distribution revenues of $3 million because the deal had not been finalized.
Main Line's maximum and minimum lost profit amounts should not be revised downward due to domestic distribution revenues of $ 3M because this figure is an estimate of future cash flows. Even though the deal had not been finalized, the distribution revenues are an approximation. This reasonable estimate should be considered and not written down in the analysis of minimum and maximum profit lost.
b. The $800,000 of foreign pre-sales because they were "probable" not actual.
Again, the maximum and minimum lost profit amounts should not be modified due to the $800K of foreign pre-sales because this amount is also an estimate of future cash flows based on potential contracts.
c. The loss of $2.1 million on the "Without Basinger" film.
The $2.1 million loss on the "Without Basinger" film should be adjusted down from Main Line's maximum and minimum lost profit amounts "because he has a duty under the law to minimize his loss, and it does not include going out and making a picture knowing you are $2 million short." (Barton, Shenkir, & Marinas, 1996) Therefore, it is reasonable to think that Main Line would not proceed with a movie where it expects to lose a great deal of money. This calculation would be based on budgeted cost verses expected sales. Basinger would not be responsible for the $2.1M loss on the "Without Basinger" film.
II. Main Line's relevant costs in determining lost profit
a. Basinger's $3 million salary for "Final Analysis."
The $3M salary for "Final Analysis" is an opportunity cost for Basinger. Accordingly, if Basinger can command a great salary elsewhere but Main Line is able to contract her services at $1M, the result represents the benefit that Basinger could realize by pursuing the alternate course of action. Main Line would not be subject to a loss of profits but rather, the $3M salary is a gain for Basinger. This cost is...