Calculating WACC adjusted for Pension Liabilities

I have trouble understanding the WACC calculations adjusted for Pension risk (V2: P515)

How I understand its calculated is; add pension liabilities (and not Pension deficit) to book value of debt, calculate cost of debt from non-adjusted WACC and then evaluate new weight for debt (including Pension liabilitied) and then calculate WACC. Please correct me if I am wrong.

Thanks for the help.

Thanks a lot Rahuls. that thread clarified the things a bit.

I will follow that thread for further questions.

This section for whatever reason really killed me last year (the math part not the concepts). I think the language they use “total asset beta, operating asset beta, operating assets” is what is confusing.

For me the key is to draw out the actual balance sheet with operating assets on one side and liabilities/equity on the other. From there it is simple algebra. Look at the morning 2008 exam question 4 i think it was.

Was in 2009. Unless you solve this problem by making a table, its very time consuming

and the task is complicated further by the table presented in V2, P515… :stuck_out_tongue:

I understood it slightly better after reading schweser . Rahuls is correct . The table is the crucial thing and if I remember right Schweser does a very slightly better job.

I think beta of the operating assets is different from operating asset beta, even tho they sound same

It has been taught in previous years that you should adjust the WACC to be project specific. Why wouldn’t you then use the Operating Asset WACC instead of the full company WACC (including pension) when judging whether to take on a project?

I think this pension-WACC issue is not in the curriculum anymore?!

Ahh, that’s what I get for doing old problems ;P. Anything added this year?

I do not know. Maybe somebody here knows it?

btw: please check again if it is really not in the curriculum, but I can’t remember it :smiley:

It’s not in this year’s material.

They whacked the WACC

This bump is more like Operation Sabotage. As we need more confusion in this period.

Say what? “Operating Asset WACC instead of the full company WACC”.

I thought I was losing it after initially reading this thread. I’m in final review mode and I had no idea what OP was talking about. Thank goodness it’s just an old topic and not something I totally spaced over.

Haha sorry guys, was just looking through some old mocks running questions and came across this. The answers in no way made sense or were consistent. They probably couldn’t reach final agreement on the material and as Audacious coined whacked WACC.