Question

the new product, Gladstone may have one of four values next year: $152 million, $136 million, $97 million, Gladstone Corporation is about to launch a new product. Depending on the success and $82 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 4.8% and assume perfect capital markets. 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 d. What is the initial value of Gladstone's equity? What is Gladstone's total value with leverage? f the debt? What is its expected return?

Answer 1

ne Arwer Guven Gladstone CoTporation is aboubto launch Рrodдиd . Sерording neu On product Suaes of wew yalues next уeам, G lad stone may foux have one of ;$152 million are million 136 $9 million $ 82 mill ion. Risk Psee Tate is interest 48 markets Assume perfect capital initial value of Gladstones eqity the calculato 0) Мow wE witheut leveraga; 152 136 +9 8 2 X = 0.25 ,048 C.25 x 46 1.048 0 25 X 445.610 $11402 millions b) Calculate initial valua of Gladstones the Nouw debt

Poye e2 00+ 98 + 8 2 loo zero-coupon ニ 0.25 X Gdod stone has .0 48 debt with a. $100 million face valuo due next yoan.) 3 80 O. 25 X .O48 =0.25 x 36 2.59 $0.648 million) calculale the yield - to- maturiby of the debt, and its Aow we expected return 00 Yield to malurity 90.648 0. 10 31 X100 10.31% half of yield to =5.15 veturn maturity value Espected Gladatoros equity initial value of the we calculate Fivally leverages total value with and 5 2+ 36 +0 t0 0.25 X .Equity 0.25x83. 969 20.99 millions Total Value e90. 648 +20.99 - 11.640 miltions