Business, 18.06.2020 23:57 chaaaa

Steinberg Corporation and Dietrich Corporation are identical firms 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 firm will generate earnings before interest and taxes (EBIT) of $3.5 million. If a recession occurs, each firm will generate earnings before interest and taxes (EBIT) of $1.9 million. Steinberg's debt obligation requires the firm to pay $980,000 at the end of the year. Dietrich's debt obligation requires the firm to pay $2 million at the end of the year. Neither firm pays taxes. Assume a discount rate of 10 percent. a. What is the value today of Steinberg's debt and equity?
b. What is the value today of Dietrich's debt and equity?
c. 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?A. DisagreeB. Agree

Answers: 1

Show answers

Another question on Business

Business, 22.06.2019 08:00

Interest is credited to a fixed annuity no lower than the variable contract rate contract guaranteed rate current rate of inflation prime rate

Answers: 2

Answer

Business, 22.06.2019 10:00

In a small group, members have taken on the task roles of information giver, critic/analyzer, and recorder, and the maintenance roles of gatekeeper and follower. they need to fulfill one more role. which of the following would be most effective for their group dynamics? a dominator b coordinator c opinion seeker d harmonizer

Answers: 1

Answer

Business, 22.06.2019 11:20

Ardmore farm and seed has an inventory dilemma. they have been selling a brand of very popular insect spray for the past year. they have never really analyzed the costs incurred from ordering and holding the inventory and currently fave a large stock of the insecticide in the warehouse. they estimate that it costs $25 to place an order, and it costs $0.25 per gallon to hold the spray. the annual requirements total 80,000 gallons for a 365 day year.a. assuming that 10,000 gallons are ordered each time an order is placed, estimate the annual inventory costs.b. calculate the eoq.c. given the eoq calculated in part b., how many orders should be placed and what is the average inventory balance? d. if it takes seven days to receive an order from suppliers, at what inventory level should ardmore place another order?

Answers: 2

Answer

Business, 22.06.2019 22:20

David consumes two things: gasoline (q 1) and bread (q 2). david's utility function is u(q 1, q 2)equals70q 1 superscript 0.5 baseline q 2 superscript 0.5. let the price of gasoline be p 1, the price of bread be p 2, and income be y. derive david's demand curve for gasoline. david's demand for gasoline is q 1equals nothing. (properly format your expression using the tools in the palette. hover over tools to see keyboard shortcuts. e.g., a subscript can be created with the _ character.)

Answers: 1

Answer

You know the right answer?

Steinberg Corporation and Dietrich Corporation are identical firms except that Dietrich is more leve...

Questions