(CHAPTER 17) From the theory about fim's capital structure by Merton Miller and Franco Modiglami, we know that for a tax-paying firm there are two effects of having a higher debt amount. First, this the firm's valiee. That's because the present value of the expected future financial distress costs second, this the firm's value. That's because the annual tax deductions this in turn tawes paid by the firm each vear, and as a result the current value of the interest lax shield