I find it weird that wacc for capital budgeting pursposes should include the pension assets. I believe that a decision regarding operations should exclude non-operational stuff. Similar to when you have a project with different beta than the overall company you focus on the beta of the specific project. But not in the first case, because here you should include lots of irrelevant pension stuff. In my opinion you should do it the other way around, after you have estimated the beta from the stock price you should back out the beta from operations. Anyone who has a good explanation for this?
yeah, i somewhat wondered the same thing… i mean, the pension assets are for a very specific purpose and are segregated… for sure, the pension committee should care abou the firm’s beta.
because after all the pension expense/income is part of the total income. the way the pension is funded affects the shareholders. The shareholders are liable for the pension plan underfunding so the cost of that capital affects them directly that is how I see it
I agree with florinpop and just take CFAI’s explanation as gospel. Why even bother wondering? I’m realizing that it’s best to just not think and spit things out the way CFAI wants. Damn reason!!