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: $149 million, $140 million, $97 million, and $77 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 4.9% and 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?