Steinberg corporation and dietrich corporation are identical companies except that dietrich is more levered. both companies will remain in business for one more year. the companies' economists agree that the probability of the continuation of the current expansion is 80 percent for the next year, and the probability of a recession is 20 percent. if the expansion continues, each company will generate earnings before interest and taxes (ebit) of $3.7 million. if a recession occurs, each company will generate earnings before interest and taxes (ebit) of $1.1 million. steinberg's debt obligation requires the company to pay $910,000 at the end of the year. dietrich's debt obligation requires the company to pay $1.2 million at the end of the year. neither company pays taxes. assume a discount rate of 12 percent.

a-1.
what is the value today of steinberg's debt and equity? (enter your answers in dollars, not millions of dollars, e. g., 1,234,567. do not round intermediate calculations and round your answers to the nearest whole number, e. g., 32.)

steinberg's
equity value $
debt value $
a-2.
what is the value today of dietrich's debt and equity? (enter your answers in dollars, not millions of dollars, e. g., 1,234,567. do not round intermediate calculations and round your answers to the nearest whole number, e. g., 32.)

dietrich's
equity value $
debt value $
b. steinberg’s ceo recently stated that steinberg’s value should be higher than dietrich’s because the company has less debt and therefore less bankruptcy risk. do you agree or disagree with this statement?
disagree
agree

a-1.

Steinberg's debt:

Steinberg's equity:

a-2.

Dietrich's debt:

Dietrich's equity:

b. Disagree as the values of the two companies are the same ( please see below Explanation for further clarification)

Explanation:

It is clear to determine that the value of debt and equity of the two firms is the present value of cash flow received in 1 year, discounted at 12%.

a-1.

In one year:

- Debt holder of Steinberg will receive $910,000 regardless of its EBIT. -=> Thus, Steinberg's debt present value = 910,000 / 1.12 = $812,500

- Given the probability of expansion and recession, Steinberg's shareholder will receive the amount equal EBIT -  amount paid to its debt holders: 0.8 x (3,700,000 - 910,000) + 0.2 x (1,100,000-910,000) = $2,270,000.

=> Thus, Steinberg's equity present value = $2,270,000/ 1.12 = $2,026,786

=> Value of Steinberg = D+E = 812,500 + 2,026,786 = $2,839,286 ( note: no tax applied)

a-2.

In one year:

- Debt holder of Dietrich will receive $1,200,000 when the business expands while only $1,100,000 when the business goes into recession (i.e business loss is 100,000):  0.8 x 1,200,000 + 0.2 x 1,100,000 = $1,180,000

=> Thus, Dietrich's debt present value = 1,180,000 / 1.12 = $1,053,571

- Given the probability of expansion and recession, Dietrich's shareholder will receive the amount equal EBIT -  amount paid to its debt holders: 0.8 x (3,700,000 - 1,200,000) + 0.2 x (1,100,000-1,100,000) = $2,000,000.

=> Thus, Dietrich's equity present value = 2,000,000 / 1.12 = $1,785,714

=> Value of Steinberg = D+E =$1,053,571+$1,785,714  = $2,839,286( note: no tax applied)

a-3.

From the calculation, it is clear that the values of the two companies are the same.

answer with step-by-step explanation:

a. wx is perpendicular to xy - true:

(since x is adjacent to x and y and all angles are 90 degrees in a square, therefore wx is perpendicular to xy)

b. ∠w is congruent to ∠x - true:

(all angles in a square are equal to each other)

c. ∠w is supplementary to ∠x - true:

(∠w and ∠x both are right angles which add up to 180 degrees so they are supplementary angles)

d. wxyz is a rhombus - true:

(a rhombus has all sides equal in length and so has a square so it is a rhombus)

e. wxyz is a trapezoid - false:

(a trapezoid has only one pair of parallel sides while a square has two pairs of parallel sides)

f. wx is parallel to yz - true:

(wx and yz are parallel to each other)

im thinking a but im not 100% sure

explanation: