ABC is an all equity firm and has expected EBIT of $60M in 2021 and will grow at 5% per year in perpetuity. Its capital expenditures and depreciation are negligible, the firm pays taxes at 40%, pays all cash flow it generates in dividends, and its cost of capital is 9% per year. Calculate ABC value as of 2020.

Assume ABC now issues $300M in perpetual debt at 6% per year in 2020 (and will maintain its debt at this level), paying the proceeds as dividends to shareholders. Which method is easiest to value this levered firm and why? Use this method to determine ABC levered value.

Now assume ABC issues debt in 2020 to establish a capital structure with a constant debt-to-value ratio of 33.33% which will maintain in the future. Which method is easiest to value this levered firm and why? Use this method to estimate ABC levered value.