Business, 06.04.2021 02:20 cooltez100

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 70 percent for the next year, and the probability of a recession is 30 percent. If the expansion continues, each company will generate earnings before interest and taxes (EBIT) of $3.4 million. If a recession occurs, each company will generate earnings before interest and taxes (EBIT) of $1.8 million. Steinberg's debt obligation requires the company to pay $970,000 at the end of the year. Dietrich's debt obligation requires the company to pay $1.9 million at the end of the year. Neither company pays taxes. Assume a discount rate of 12 percent. Required:
a. What are the current market values of Steinberg's equity and debt?
b. What are the current market values of Dietrich's equity and debt?
c. Steinberg's CEO recently stated that Steinberg's value should be higher than Dietrich's because the firm has less debt, and, therefore, less bankruptcy risk. Do you agree or disagree with this statement?

Answers: 3

Show answers

Another question on Business

Business, 21.06.2019 16:30

]4. seiler company has the following information: materials work-in-process finished goods beginning inventory 300 400 500 ending inventory 700 900 1500 material purchase 7,700 cost of goods sold 15,600 direct labor 5,500 what was the manufacturing overhead for the period? a. $3,400. b. $4,300. c. $3,000. d. $5,500.

Answers: 2

Answer

Business, 21.06.2019 16:30

Achecklists should be based on past

Answers: 1

Answer

Business, 22.06.2019 20:10

Your sister is thinking about starting a new business. the company would require $375,000 of assets, and it would be financed entirely with common stock. she will go forward only if she thinks the firm can provide a 13.5% return on the invested capital, which means that the firm must have an roe of 13.5%. how much net income must be expected to warrant starting the business? a. $41,234b. $43,405c. $45,689d. $48,094e. $50,625

Answers: 3

Answer

Business, 22.06.2019 20:50

The following accounts are from last year’s books at s manufacturing: raw materials bal 0 (b) 157,400 (a) 172,500 15,100 work in process bal 0 (f) 523,600 (b) 133,700 (c) 171,400 (e) 218,500 0 finished goods bal 0 (g) 477,000 (f) 523,600 46,600 manufacturing overhead (b) 23,700 (e) 218,500 (c) 27,700 (d) 159,400 7,700 cost of goods sold (g) 477,000 s manufacturing uses job-order costing and applies manufacturing overhead to jobs based on direct labor costs. what is the amount of cost of goods manufactured for the year

Answers: 3

Answer

You know the right answer?

Steinberg Corporation and Dietrich Corporation are identical companies except that Dietrich is more...

Questions