WACC and changing leverage reduce, equity, assets, should, following

jcole21

I get confused about these questions, and I know they should be easy. Let's say you have the following:

Equity beta = 2
Equity = 10
Debt = 10
Operating assets = 20

Therefore your OA beta is 1 (or 10/20 * 2 + 10/20 * 0 = 1).

If you leverage up and reduce equity, say to 5 equity and 15 debt, which one changes, your equity beta or your OA beta?

is it THIS: equity beta becomes such that 1 = 5/20*Be => Be = 4
or THIS: operating asset beta becomes 5/20*2 = 0.5?