thommo77

^ correct. You have a pension whose assets and liabilities are managed. They each have some beta in their portfolio, so the main idea is that you need to reflect the pension into part of your operating assets.

So yes, you merge them into the balance sheet. Lucky for you this wasn't on...it was on last year's exam, so I don't imagine this being on the AM session again.

ohai

Hey, this looks like new stuff that wasn't on L3 when I took it.

Is the basic idea about calculating WACC with total pension assets and liabilities merged into the company balance sheet?

dyga

Its just one thats really getting under my skin. I think its easy but I cant get it. I want to stick my pen in my ear every time I see a question.

mp3bu

if it was on the 2009 AM, why do you think it will be there in 2010? i thought CFAI doesn't like repeating things.

cityboy

From the the pension balance sheet (liabilities and assets), calculate the total assets and then you can calculate the total asset Beta as:

Total Beta = Weight pension liabilities * Pension Beta + Weight operating liabilities * liabilities Beta + weight operating assets * Operating Beta

Typically As
Pension Beta = 0
Operating liabilities Beta = 0

You're left with
Total Beta = weight operating assets * Operating Beta

Use that total beta and plug it back in the equation below to isolate the "true" operating Beta

Total Beta = Weight operating assets * True Operating Beta + Weight pension assets * Pension Beta

That's about it...

J.

bkballa

Review question 4 from the 2009 am. they give a pretty good explanation there.

Analti_Calte

Me too - I always get these wrong - there has to be an easy way to remember how to do it.