valued at 3. MarineCo has no debt but does have unfunded pension liabilities $200 million, recorded as a long-term other liability. MarineCo has detailed in its annual report a potential legal judgment of $100 million for defective engines. Since management estimates a 90 percent likelihood the judgment will be enforced against the engine maker and not MarineCo, it has not reported a liability on the balance sheet. The company's marginal tax rate is 30 percent. Based on this information and information provided in Question 2 (assuming no sale of the subsidiary), what is MarineCo's equity value? 4 You are valuing a company that has $200 million in debt using probability- weighted scenario analysis You carefully model three scenarios, such thait the resulting enterprise value equals $300 million in scenario 1, $200 million in scenario 2, and $100 million in scenario 3. The probabilities of the sce- narios are 25 percent, 50 percent, and 25 percent, respectively. What is the expected enterprise value? What is the expected equity value? Management announces a new plan that eliminates the downside scenario (scenario 3), yielding a 75 percent probability of scenario 2. What happens to enterprise value and equity value? Why does enterprise value rise more than equity value? valued at 3. MarineCo has no debt but does have unfunded pension liabilities $200 million, recorded as a long-term other liability. MarineCo has detailed in its annual report a potential legal judgment of $100 million for defective engines. Since management estimates a 90 percent likelihood the judgment will be enforced against the engine maker and not MarineCo, it has not reported a liability on the balance sheet. The company's marginal tax rate is 30 percent. Based on this information and information provided in Question 2 (assuming no sale of the subsidiary), what is MarineCo's equity value? 4 You are valuing a company that has $200 million in debt using probability- weighted scenario analysis You carefully model three scenarios, such thait the resulting enterprise value equals $300 million in scenario 1, $200 million in scenario 2, and $100 million in scenario 3. The probabilities of the sce- narios are 25 percent, 50 percent, and 25 percent, respectively. What is the expected enterprise value? What is the expected equity value? Management announces a new plan that eliminates the downside scenario (scenario 3), yielding a 75 percent probability of scenario 2. What happens to enterprise value and equity value? Why does enterprise value rise more than equity value
