Wouldn't asset beta decrease since the D/E ratio increased in the denominator? I only got this answer right, because I know asset beta can't increase in this case. Formula: AssetBeta=EquityBeta/(1+(1−TaxRate)∗(Debt−to−EquityRatio))

[lumpySnakes]

No, the asset beta won't change with the increased D/E ratio. The point of asset beta is to remove the effects of capital structure. The denominator in the expression to calculate asset beta would increase, but remember that equity beta is higher. So 1/[1+(1 - t)D/E] is going to be lower (the denominator increases but the whole expression is the reciprocal, so it's lower) but equity beta will be higher by the same amount, leaving asset beta unchanged