Assume a firm’s debt is risk-free, so that the cost of debt equals the risk-free rate, R_f. Define β_A as the firm’s asset beta – that is, the systematic risk of the firm’s assets. Define β_S to be the beta of the firm’s equity. Use the capital asset pricing model, CAPM, along with MM Proposition II to show that β_E = βA × (1 + D/E), where D/E is the debt–equity ratio. Assume the tax rate is zero.