(c) What is the expected return on company's debt! 2. Steinberg Corporation and Dietrich Corporation are identical firms except, that Dietrich is more lever- aged. The companies' economists agree that the probability of the continuation of the current expansion is 80 percent for the next year and the probility of a recession is 20 percent. If the expansion continues, each firm will generate earnings before interest and taxes (EBIT) of $2.7 million. If a recession occurs, each firm will generate EBIT of $1.1 million. Steinberg's debt obligation requires the firm to pay $900.000 at the end of the year. Dietrich's debt obligation requires the firm to pay $1.2 million at the end of the year. Neither firm pays taxes. Assume a discount rate of 13 percent. (a) What is the value today of Steinberg's debt and equity? What about that for Dietrich's debt and equity? (b) 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 diagree with this statement? Assume that bankruptcy costs total $100,000. (c) What is the value today of Steinberg's debt and equity? What about that for Dietrich's debt and equity?