Clarion Manufacturing Company is a publicly held company that is engaged in the manufacture of home and office furniture. The firm€™s most recent income statement and balance sheet are found below.

a. Clarion€™s future operating earnings are flat ( i. e., no growth), and it anticipates making capital expenditures equal to depreciation expense with no increase anticipated in the firm€™s net working capital. What is the value of the firm using the APV model? To respond to this question, you may assume the following: The firm€™s current borrowing rate is the same as the 9% rate it presently pays on its debt, all the firm€™s liabilities are interest bearing, the firm€™s €œ unlevered€ cost of equity is 12%, and the firm€™s tax rate is 30%.
b. What is the value of Clarion€™s equity (i. e., its levered equity) under the circum-stances described in part (a)?
c. What is Clarion€™s weighted average cost of capital, given your answers to parts (a) and ( b)?
d. Based on your answers to parts (a) to (c), what is Clarion€™s levered cost of equity? 7
e. If the risk- free rate is 5.25% and the market risk premium is 7%, what is Clarion€™s levered beta? What is Clarion€™s unlevered beta?

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Income Statement ($000) Sales Cost of goods sold Gross profit Selling and administrative expenses Operating income Interest expense Earnings before taxes Taxes Net income Balance Sheet ($000) Current assets Fixed assets 16,000 (9,000) 7,000 (2,000) 5,000 (630) 4,370 (1311) 3,059 5,000 9,000 $14,000 Liabilities6 Owners' equity 7000 7,000 14,000