$8$ APV VALUATION 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.

Income Statement $($$$000)$

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 re$-$

spond 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 "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 $5\mathrm{.}25\%$ and the market risk premium is $7\%,$ what is Clarion's

levered beta? What is Clarion's unlevered beta?