In the original version of the Modigliani and Miller capital structure theorem, as a firm increases the amount of debt in its capital structure, the cost of equity will rise but the cost of capital will remain the same.

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This is the basic principle of the Modigliani and Miller capital structure theorem, which states that in a perfect market with no taxes, the cost of capital remains the same regardless of the capital structure, while the cost of equity increases as debt increases due to the higher risk imposed on equity holders. However, in the real world, there are factors such as taxes and bankruptcy costs that can affect the optimal capital structure.

In the Original Version of the Modigliani and Miller Capital