allocating shareholder capital to pension plans (On Page 64, Book 2 of Schweser)

Hi, all! about LOS 22.b Key concepts; Schweser says; The level of pension assets and liabilities should be used in determing the fiem’s operating WACC in order to SEPARATE the risk of the firm’s pension assets from the risk of its business operations. I beleve not “SEPARATE” but “COMBINE”… why “SEPARATE” ?? anyone instruct me, please… thanks in advance!

Oh! you are talking about key concepts at the end of chapter in sch. Yeah. I think it makes sense if you put COMBINE. Otherwise, it was not mentioned in the main chapter, which is fine.

manet_5 Wrote: > I beleve not “SEPARATE” but “COMBINE”… > why “SEPARATE” ?? WACC should reflect combined assets and liabilities.

Here’s one possible alternative reading of what they wrote. If (and this is a big if) you assume equity investors include pension status in their pricing of shares, then a firm’s beta reflects a combination of operating, financing, and pension influences. To determine the “operating WACC” (a phrase I haven’t seen before, so not sure what it means), you’d have to back out the influence of pension status on the overall company WACC.

thanks for the help!