agree that for the next year, and the is 80 is 20 percent. If the before interes

Question

agree that for the next year, and the is 80 is 20 percent. If the before interest and taxes (EBIT) of $3.5 million. If a r before interest and taxes (EBIT) of $1.9 million. Steinberg's debt to pay the company to pay $2 million at the end requires the (Enter your answers in dollars, not lo e.g, 1,234,567. Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) Enter your answers in dolars, not millions of dofars e9-1234562, Do hot round intermedlate cakelations and round your answers to the nearest whole number, e.g., 32.) Disagree

Explanation / Answer

Working Notes

1.Calculation of Earning before interest and taxes (both the company)

EBIT = 3500000*0.80+1900000*0.20

=3,180,000

PART - A

Steinberg total value

EBIT : 3,180,000

Less : Debt Payable

(980000*1/1.10)

(980000*0.9091) :(890,909)

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Amount available to equity Shareholder 2,289,091

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Value of Equity shareholder today = 2,289,091*0.9091 (Discounting factor 10% (1/1.10) )

= 2,081,012.63

PART - B

Dietrich total value

EBIT = 3,180,000

Less : Debt obligation

(2000000*0.9091) = (1,818,181)

--------------

Amount available to equity holder 1,361,819

--------------

Amount of Equity Value today = 1,361,819*0.9091

=1,238,029.65

Part - C

Steinberg 's CEO Statement is valid .

Steinberg value higher than Dietrich value and Debt Steinberg value is lower than Dietrich value. In case of bankruptcy first settled to Debt holders after that settled to equity shareholder..

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