Hi, can I please get some help solving this case? I don't know how to work on this and was needing someone to walk me through it.
Case 75 The Western Company o Capital Budgeting R CLASSROOM USE Directed Western is a holding company which ows two scgulated utiles plus a third subsidiary which Invests in uregulated energy projects Wedern'only Nebkan Isto provide capital and saf sup: port to the subsidiaries-t is strictly a holding company. Allcash flows generatod try the subsidiaries are controlled by Weston, which uses funds Ibupped its stall, to pay dividends, and to reinvestis its subsidiaries. Funds are allocaod back to the subsidiarios depending on their investment oppor- tunities, not in proportion to the amount ofunds went up to the parent company. The subsidiaries naise debe and preferred stock by issuing their own securities, but they Kod como equity over and above the amount of funds sont back by the parent company (retained earnings), Western issues thods, preferred stock and/or coxmon suock and then uses the proceeds to huy common xk in the auhidiaryBoth the Ruhsidiaries" al Weslern'bonds and preferred socks are traded in the pub- e market, but the subsidiarias' securities are not actively traded so valid quotations are available only few Western's debt and preferred skxk. Abo. Western's common slek is publikty tradd. Wedis contemplating not uste preferred dock in the future hut a final decision has not heen reached. The company posthiphits hulpel process in the fall. A that time, capital expen- ditures for the coming year are authored, and plants are made to af any rcguired ccmai cupi- tal. Also, the Board makes a tentative determination of executive houses for the year, and it aproves the operaffeg tapets up which the following year's compenson will be based. Wed- ern's financial sifalo compare the uility insidiaries' erbest rates of return to their authorized Tales of return, heir allied turns to estimates of their costs of capaal. If the utilities are projected to an a weale of return o equity in their regulatory commissfoes have ho fined or if the authorized return is less than the cost of city as estimated by agement, then the subsidiaries will seek rate increases Weere has been relying o the consulting avise of its counting firmo develop estimates of the cost of capital. Whe Tea Clark Walen'eccally hired Co, received the counts cost of capitaleindes, he was raky Ngik dereces between the accountants' calu- taxas de procedures she was used to seeing. She then add your opening firm to do a lade onde con el capital study, and you were signed il task Ties plained that she needs he cost of capital regulatory purposes, for evaluating pro- pel capital expenditures, and fordulating from Vale dodaVA Sbe unidad de al sue discellaneous forme crised Talesi hapa 4
