Matrix Ltd currently has a Cost of Equity of 12.2%. The Risk-free rate is 5% and the market Risk premium is 6%. The companys bonds currently have a nominal yield to maturity of 8.25%. (Hint: Please use this as cost of debt). The capital structure of the company consists of Rs 6 million of equity and Rs 4 million of debt. Using the current corporate tax rate (disregard any cess or surcharge) under the Income-tax Act. Please calculate: on Excel

1. Value of Beta
2. WACC

The company is considering changing its capital structure. Under the proposed plan the company would increase its debt by Rs 2 million and use the proceeds to buy back its common stock. The Yield to maturity of the bond remains unchanged. What is the companys estimated WACC if it goes ahead with the plan? Do you think it was the right decision to make? Discuss.