Under MMProposition Iwith no taxes, an increase in the proportion of debt in the capital structure results in:

Group of answer choices

No impact on future cash flows and no impact on the cost of capital.

A decrease in future cash flows and a decrease in the cost of capital.

An increase in future cash flows and an increase in the cost of capital.

MM Proposition IIwithout taxes most likely asserts that:

Group of answer choices

As the proportion of debt in a companys capital structure increases, its weighted average cost of capital decreases.

As the proportion of debt in a companys capital structure increases, its cost of equity also increases.

A companys capital structure has no impact on its market value.

Consider the following statements:

Statement 1: The pecking order theory implies that issuance of debt usually sends a positive signal about the company to the market.

Statement 2: The pecking order theory implies that managers tend to issue equity when they believe that the companys stock is undervalued.

Which of the following is most likely?

Group of answer choices

Only Statement 2 is incorrect.

Both statements are correct.

Only Statement 1 is incorrect.