Gladstone Corporation is about to launch a new product. Depending on the success of the new product, Gladstone may have one of four values next year: $145 million, $136 million, $92 million and $75 million. These outcomes are all equally likely, and this risk is diversifiable. Gladstone will not make any payouts to investors during the year. Suppose the risk-free interest rate is 5.1% assume perfect capital markets.
A. What is the initial value of Gladstone's equity without leverage?
Now suppose Gladstone has zero-coupon debt with a $100 million face value due next year
B. What is the initial value of Gladstone's debt?
C. What is the yield-to-maturity of the debt? What is its expected return?
D. What is the initial value of Gladstone's equity? What is Gladstone's total value with leverage?
A. What is the initial value of Gladstone's equity without leverage?
The initial value of Gladstone's equity without leverage is $ ____ million (Round to two decimal places.)
?B. What is the initial value of Gladstone's debt?
The initial value of Gladstone's debt is $ _____ million (Round to two decimal places.)
c. What is the yield-to-maturity of the debt? What is its expected return?
The? yield-to-maturity is ____ % (Round to the nearest integer.)
The expected return is ____ % ?(Round to one decimal place.)
d. What is the initial value of Gladstone's equity. What is Gladstone's total value with leverage?
The initial value of Gladstone's levered equity is $ ____ million (Round to two decimal places.)
Gladstone's total value with leverage is $ ____ million (Round to two decimal places.)