Select all that applyUnder the MM propositions with no taxes, managers cannot change the value of the firm by repackaging its securities because Blank______.Multiple select question.as debt is added, the equity becomes more riskycapital structures are fixedthe overall cost of capital cannot be reduceddebt is not cheaper than equity

The correct answers are:

1. As debt is added, the equity becomes more risky: This is true because as a company takes on more debt, the risk to equity holders increases. This is because debt holders have a higher claim on the company's assets and earnings. If the company were to go bankrupt, debt holders would be paid before equity holders. Therefore, the more debt a company has, the riskier its equity becomes.

2. The overall cost of capital cannot be reduced: This is also true under the Modigliani-Miller theorem, which states that in a world without taxes, bankruptcy costs, agency costs, and asymmetric information, and in an efficient market, the value of a firm is unaffected by how that firm is financed. Therefore, the cost of capital cannot be reduced simply by changing the capital structure.

The other options are incorrect because:

1. Capital structures are fixed: This is not true. A company can change its capital structure by issuing more debt or equity.

2. Debt is not cheaper than equity: This is not necessarily true. The cost of debt is usually lower than the cost of equity because debt payments are tax deductible and debt holders take on less risk than equity holders. However, this does not mean that a company can increase its value simply by taking on more debt. According to the Modigliani-Miller theorem, the increased risk of bankruptcy associated with higher levels of debt will offset the tax benefits, leaving the overall value of the firm unchanged.