The MM theory with taxes implies that firms should issue maximum debt. In practice, this does not occur because: bankruptcy is a disadvantage to debt. debt is more risky than equity. the weighted average cost of capital is directly related to the debt-equity ratio. the weighted average cost of capital is inversely related to the debt-equity ratio. U.S. regulations require the debt-equity ratio of publicly-traded firms to be in the range of .3 to .7