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Steinberg Corporation and Dietrich Corporation are identical companies except that Dietrich is more levered. Both companies will remain in business for one more year. The

Steinberg Corporation and Dietrich Corporation are identical companies 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 90 percent for the next year, and the probability of a recession is 10 percent. If the expansion continues, each company will generate earnings before interest and taxes (EBIT) of $4.5 million. If a recession occurs, each company will generate earnings before interest and taxes (EBIT) of $1.9million. Steinberg's debt obligation requires the company to pay $990,000 at the end of the year. Dietrich's debt obligation requires the company to pay $2.0 million at the end of the year. Neither firm

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