Below are some statements about the Modigliani and Miller (MM) theories on capital structure. Which statement is correct? Answers: 1.In a world with no taxes, MM shows that a firms capital structure does not affect the firms value. However, when taxes are considered, MM show a negative relationship between debt and value, i.e., its value falls as its debt is increased. 2. MM shows that in a world without taxes, a firms value is not affected by its capital structure. 3.According to MM, in a world without taxes, the optimal capital structure for a firm is approximately 100% debt financing. 4. MM shows that in a world with taxes, a firms value is not affected by its capital structure.