AFleet is a startup firm that provides autonomous trucking and logistics services. The firm is considered to have a business risk similar to that of Knight Transportation Holdings (NYSE: KNX). To evaluate AFleet, a venture capitalist has collected the following information:

AFleet has financed 40% of its total investment using debt and plans to maintain its current leverage ratio in the future. Its debt beta is estimated at 0.1. AFleet faces a marginal tax rate of 30%.

Knight Transportation, the comparable firm, has market capitalization (i.e., equity) worth $30 billion and debt worth $30 billion. Its equity beta and debt beta, respectively, are estimated at 1.3 and 0.1. Knight Transportations marginal tax rate is estimated to be zero.

The risk-free rate is 4% and the market risk premium is 6%.

Answer questions a) below. (Lecture notes pp.37-41, example pp.42-44)

a) Determine the unlevered asset beta and unlevered cost of capital for AFleet.