In a world with no taxes, MM show that a firm's capital structure does not affect the firm's value.However, when taxes are considered, MM show a positive relationship between debt and value, i.e., its value rises as its debt is increased.

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This is a well-known concept in finance known as the Modigliani-Miller theorem. In a world with no taxes or other frictions, a firm's capital structure does not affect its value. However, when taxes are introduced, the tax deductibility of interest payments makes debt less expensive than equity, which creates a value incentive for firms to use more debt financing. This results in a positive relationship between debt and firm value.

In a World with No Taxes, MM Show That a Firm's