2009 AM Q4 pension plan why, average, returns, someone

Roflnadal

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.

prashantsahni

did you read the text?

former

I still dont get how they solved it=)

Howd

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.