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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
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: $ $ $ and $ These outcomes are all equally likely, and this risk is diversifiable. Suppose the riskfree interest rate is and that, in the event of default, of the value of Gladstones assets will be lost to bankruptcy costs. Ignore all other market imperfections, such as taxes. Initially, Gladstone was an allequity firm with shares outstanding. Gladstone is going to issue zerocoupon debt with a $ face value due next year. How much is the change in stock price? Why answer is
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