What is the initial value of gladstones debt

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Reference no: EM133433531

Question: What is the initial value of Gladstone's debt?

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: $147 million, $136 million, $91 million, or $82 million. These outcomes are all equally likely, and this risk is diversifiable. Suppose the risk-free interest rate is 5% and that, in the event of default, 26% of the value of Gladstone's assets will be lost to bankruptcy costs. (Ignore all other market imperfections, such as taxes.

Reference no: EM133433531

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