LIIS UUM Both companies will remain in business for one encial Distress Steinberg Corporation and Dietrich Corporation ar firms except that Dietrich is more levered. Both companies will rem more year. The companies' economists agree that the probability of the continuation rent expansion is 80 percent for the next year, and the probability of a recession is 20 nerean If the expansion continues, each firm will generate earnings before interest and taxes (EBIT) of $2 million. If a recession occurs, each firm will generate earnings before interest and taxes (EBIT) of $800,000. Steinberg's debt obligation requires the firm to pay $750,000 at the end of the year. Dietrich's debt obligation requires the firm to pay $1 million at the end of the year. Neither firm pays taxes. Assume a discount rate of 13 percent. a. What are the potential payoffs in one year to Steinberg's stockholders and bondholders? What about those for Dietrich's? 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 disagree with this statement