Question

The situation is that a liability will be due in next 15 to 20 years time and a provision need to be made so in ariving at discount rate (WACC) the cost of equity is calculated using CAPM, should the size risk premium be considered in this situation

Answer 1

I am assuming you are talking about a pension liability. I don't think you should treat as debt because first pension liabilities have lot of assumptions built into them so it is very noisy. Unfortunately, none of us know what would happen 20 years from now. Also, you have to remember that pension liabilities can be cut by negotiating with employees. So I would not worry about it so much unless the firm has a large underfunded pension plan that it has to pay a lot of retirees right now.