Allocating shareholder capital to pension plans assets, depends, balance, capital, average

John10

Hi,

in the Schweser level III book2 page 64, it is said that "if the beta of the pension plan assets is less than the beta of the firm's balance sheet assets, the WACC using the weighted average asset beta is less than the WACC using the balance sheet assets alone".

This sentence is incorrect, in my opinion, for 2 reasons:
1) The WACC doesn't depend on the weighted average asset beta, but on the operating assets beta which depends on the weighted average asset beta.
2) Even if the pension plan assets beta is higher than the balance sheet asset beta, the WACC can be lower when taking into consideration the size of the pension liabilities.

What's your opinion ?

Thanks in advance,

Bernard