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: $150 million, $135 million, $95 million, or $80 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, 25% of the value of Gladstones assets will be lost to bankruptcy costs. (Ignore all other market imperfections, such as taxes.

) What is the initial value of Gladstones debt? the answer is

Answer:b)

=0.25*[(100+100+95*0.75+80*0.75)/1.05]

=$78.87 million

my question is , I need you to provide me with an explanation on how did they do this calculation? where are the rest of the numbers? why did they multiply by0.75? Thank you very much