2009 AM Q4 pension plan

Part A asks us to calculate WACC. This is how I think about it:

Operating excl pension plan

debt return=3% value=$500m

equity return=3%+2*9%=21% value=$500m

Pension plan

Debt return=3% value=800*40%=320m

equity return=3+9% value=480m

hence, WACC=weighted average of 4 returns above=(5/18)*3%+(5/18)*21%+(3.2/18)*3%+(4.8/18)*12%=10.4%

Can someone tell me why this is wrong? Thanks.

It’s not a normal WACC. Supposedly, inthe speech that was transcribed into the curriculum, the guy said WACC when he meant cost of equity. Curriculum quirk.

I still dont get how they solved it=)

did you read the text?

Focused on it :slight_smile: took me 4 mins to solve … Easy to be honest