1. Taking into consideration the combined companys cost of capital and cash flows, calculate the value of AllFlix as a consolidated company. 2. Taking into consideration the industry average cost of capital for each division and the divisional cash flows, calculate the value of AllFlix as the sum of its parts. 3. Do you get different results for the value of AllFlix in Questions 1 and 2? If yes, what is the reason for this difference?

AllFlix Inc. appointed you as the new Valuation Managing Director. AllFlix Inc. is a group of three providers of on-demand internet streaming media; a) DramaFlix, a company that streams only drama movies, b) HorrorFlix specializing in streaming horror movies, and c) DocFlix, a company that streams documentaries about nature and outdoor activities. The table below provides some key details of the three businesses and the consolidated company: DramaFlix 110 HorrorFlix DocFlix 36 55 AllFlix 201 Operating Income (next year) After-tax Operating Income (next year) Revenues Invested Capital Effective tax rate Cost of capital Expected Growth Rate 70 450 450 36% 9.00% 2.00% 29 350 360 20% 7.00% 2.00% 35 134 420 1,220 130 940 36% 33.13% 6.00% 8.00% 2.00% 2.00%