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, and

$80 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 5.0% and assume perfect capital markets. Now suppose Gladstone has zero-coupon debt with a $100 million face value due next year.

a. What is the initial value of Gladstone's debt?

b. What is the initial value of Gladstone's equity? What is Gladstone's total value with leverage?