Information Provided: Firm’s Equity Beta = 1 Risk Free Rate = 5% Market Risk Premium = 8% Debt = $9m Equity = $21m Pension Asset Beta = 0.6 Pension Assets = $15m Q6 asks what the new WACC would be after incoporating the pension assets and liabilities, and provides the answer as: RFR + Operating Asset Beta*(Market Risk Premium) = 5% + 0.4*(8) = 8.2% This just seems to be CAPM which calculates the Cost of Equity, Ke. The formula for WACC I know is: WACC = W(e)*K(e)+K(d)*(1-t)*W(d) I am going crazy! Can someone help please? Thanks
This is from Book 2 Page205
I saw the same thing. Wish I could helpful but i think it is their assumption for wacc = required return.
Thanks caratop - can anyone else shed any light?
Anyone got any ideas or is it just too easy that I am missing something? Thanks.