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You have been just hired as CEO of Mirra Inc., a conglomerate that operates in three businesses. The details of the businesses are provided below:
| | Entertainment | Movie Theaters | Travel Services | Company |
| Revenues | $400 | $300 | $300 | $1,000 |
| Operating Income (next year) | $100 | $30 | $50 | $180 |
| Effective tax rate | 36% | 20% | 36% | 33.33% |
| After-tax Operating Income (next year) | $64 | $24 | $32 | $120 |
| Invested Capital | $500 | $400 | $100 | $1,000 |
| Expected Growth Rate | 3.00% | 3.00% | 3.00% | 3.00% |
| Cost of capital | 10.00% | 8.00% | 7.00% | 9.00% |
a. What is the value of the consolidated company, using the combined companys cash flows and cost of capital?
b. What is the value of Mirra as the sum of its parts, using the divisional cash flows and the industry average cost of capital for each division?
c. If you are getting a different value for Mirra in part b, where is the difference coming from?
Discounts? Efficiencies? Capital Structure? Taxes? Growth Rates?
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