In $1999,$ Amazon Inc, is considering launching a new e$-$commerce business specializing in cloud

computing services. The project is tentatively named Amazon Web Services $($henceforth "AWS"$).$

To assess the feasibility of AWS, Amazon's CFO has identified Oracle Corp. $($NYSE: ORCL$)$ as a

comparable firm that has a similar business risk and estimated the following information:

Oracle has equity and debt worth $$20$ billion and $$40$ billion, respectively.

Oracle's equity beta and debt beta are estimated at $1\mathrm{.}8$ and $0\mathrm{.}1,$ respectively.

Oracle's marginal tax rate is estimated at $25\%.$

Amazon CFO is trying to determine the weighted average cost of capital for AWS. He believes that

Amazon's cost of debt will apply to AWS's debt financing. The CFO's estimate of the CAPM beta of

AWS's debt is $0\mathrm{.}2.$ AWS is expected to maintain a target leverage ratio of $50\%($equivalently$,$

debt$/$equity $=1)$ and face a marginal tax rate of $20\%$ in the foreseeable future. Assume that the

risk$-$free rate is $5\%$ and the market risk premium is $10\%.$

Answer questions a$)$ and b$)$ below.

a$)[10$ marks$]$ To help Amazon CFO complete his analysis, calculate the unlevered asset beta.

"For full credit, you must show the steps$/$calculation toward your results.