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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 $3.9 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 $930,000 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 12 percent.
a-2. What are the current market values of Dietrich's equity and debt? (Enter your answers in dollars, not millions of dollars. Do not round intermediate calculations and round your answers to the nearest whole dollar, e.g., 1,234,567.)
Afirms dividends have grown over the last several years. 6years ago the firm paid a dividend of $1. Yesterday it paid a dividend of $7. What is the average annual growth of dividends.
What is the total cost recovery assuming that the taxpayer does or does not elect bonus depreciation on auto (half-year convention but no immediate expensing)
What would be the debt ratio of the firm after incorporating the impact of the operating leases?
Suppose you borrow $10,000 from your parents to buy a car. What is the annual percentage rate?
You are given the following information for Lightning Power Co. Assume the company’s tax rate is 40 percent. Debt: 5,000 7.8 percent coupon bonds outstanding, $1,000 par value, 20 years to maturity, selling for 107 percent of par; the bonds make semi..
What are Jake’s monthly principal and interest payments for year 4?
You deposit $1,000 in an account. You expect the account to earn 0.75% annual interest for the first six years. Then you expect the account to earn 1.03% annual interest until you close the account after 15 years. About how much should be in the acco..
The December 31, 2013, balance sheet of Schism, Inc., showed long-term debt of $1,450,000, and the December 31, 2014, balance sheet showed long-term debt of $1,680,000. The 2014 income statement showed an interest expense of $99,000. What was the fir..
A financial institution has the following portfolio of over-the-counter options on sterling: What position in the traded option and in sterling would make the portfolio both gamma neutral and delta neutral?
Haskell Corp. is comparing two different capital structures. Plan I would result in 8,000 shares of stock and $80,000 in debt. Plan II would result in 6,000 shares of stock and $120,000 in debt. The interest rate on the debt is 6 percent. In part (a)..
calculate the vale of an index call option with an exercise price of 670 and an expiration date in exactly three months.
there is a lot of public attention given to how companies are administering pension plans.
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