Steinberg Corporation and DIetrich Corporation are identical firms expect that Dietrich is more levered. Both companies will remain in business for one more year. The companies economists agree that the probablity of the continuation of the current expanison is 80 percent for the next year, and the probability of a recession is 20 percent. If the expansion continues, each firm will generate earnings before interest and taxes (EBIT) of $2.9 million. If a recession occurs, each firm will generate earnings before interest and taxes (EBIT) of $1.3 million. Steinberg's debt obligation requires the firm to pay $920,000 at the end of the year. Dietrich's debt obligation requires the firm to pay $1.4 million at the end of the year. Neither firm pays taxes. Assume a discount rate of 15 percent.
A. What are the current market values of Steinberg's equity and debt?
Equity Value $
Debt Value $
B. What are the current market values of Dietrich's equity and debt?
Equity Value $
Debt Value $