Roosters Equity Fund has asked you to provide them an estimate of the intrinsic value for a Brisbane based sportswear company, Broncos Limited. Broncos Limited has 80 million shares outstanding and the shares are currently trading at $4.50 on the Australian Securities Exchange. Broncos Limited is rated AA by Moodys and so has a credit default swap spread of 35 basis points. The company has just reported revenue of $40 million, operating income of $25 million, net debt of $20 million and cash of $2 million for 2020. Broncos Limiteds revenue is expected to increase by 10% during the high growth phase and 1% during the stable growth phase. Ordinary shareholders have just been paid a dividend of $2 per share. Bronco Limiteds expenditure on capital during 2021 was $8 million with depreciation being estimated as 30% of capital expenditure. The non-cash working capital for the company is always 35% of revenue. Operating income, capital expenditure, depreciation and non-cash working capital are expected to grow at the same rate as revenue. The unlevered beta of Broncos Limited is 0.9 and analysts forecast this will decrease to 0.7 when the company enters its stable growth phase in 2023. Analysts also forecast that the companys current debt to total capital ratio of 30% will increase to 40% in the stable growth phase. Consequently, their debt to equity ratio will increase from 43% to 67%. Treasury bonds are currently trading at 1% per annum and the equity risk premium is 2% per annum. In the current environment the Treasury bond rate and equity risk premium are not expected to change for several years. The Australian corporate tax rate is 30%.

Question- Estimate the cost of capital for Broncos Limited during the high growth and stable growth period. Show your working.