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 somparable 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 1.8 and 0.1, 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 0.2. AWS is expected to maintain a target leverage ratio of 50% ( equivalently, debt/equity = 1) and to face a marginal tax rate of 20% in the foreseeable future. Assume that the tisk - free rate is 3% 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. b) [10 marks] Determine the weighted average cost of capital (WACC) for AWS. In case you are unsure about your resat in part a assume that undevered asset beta h = 0.6. "For full 4 credit, you must show the steps/calculation towand your results.
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 somparable 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 1.8 and 0.1, 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 0.2. AWS is expected to maintain a target leverage ratio of 50% ( equivalently, debt/equity = 1) and to face a marginal tax rate of 20% in the foreseeable future. Assume that the tisk - free rate is 3% 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. b) [10 marks] Determine the weighted average cost of capital (WACC) for AWS. In case you are unsure about your resat in part a assume that undevered asset beta h = 0.6. "For full 4 credit, you must show the steps/calculation towand your results.
Chemistry
10th Edition
ISBN:9781305957404
Author:Steven S. Zumdahl, Susan A. Zumdahl, Donald J. DeCoste
Publisher:Steven S. Zumdahl, Susan A. Zumdahl, Donald J. DeCoste
Chapter1: Chemical Foundations
Section: Chapter Questions
Problem 1RQ: Define and explain the differences between the following terms. a. law and theory b. theory and...
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![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 somparable 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 1.8 and 0.1, 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 0.2. AWS is
expected to maintain a target leverage ratio of 50% (
equivalently, debt/equity = 1) and to face a marginal
tax rate of 20% in the foreseeable future. Assume that
the tisk - free rate is 3% 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. b) [10 marks]
Determine the weighted average cost of capital (WACC)
for AWS. In case you are unsure about your resat in part
a assume that undevered asset beta h = 0.6. "For full
4
credit, you must show the steps/calculation towand
your results.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F15c5d520-1d44-4734-a293-c658f5f9ad9c%2Ff80dcbc9-04be-4cbb-96f6-26646f9f5dbb%2Ftp71q3r_processed.jpeg&w=3840&q=75)
Transcribed Image Text: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 somparable 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 1.8 and 0.1, 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 0.2. AWS is
expected to maintain a target leverage ratio of 50% (
equivalently, debt/equity = 1) and to face a marginal
tax rate of 20% in the foreseeable future. Assume that
the tisk - free rate is 3% 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. b) [10 marks]
Determine the weighted average cost of capital (WACC)
for AWS. In case you are unsure about your resat in part
a assume that undevered asset beta h = 0.6. "For full
4
credit, you must show the steps/calculation towand
your results.
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