Modern capital structure theory began in 1958 when Professors Modigliani and Miller (MM) published a paper that proved under a restrictive set of assumptions that a firm's value is unaffected by its capital structure. By indicating the conditions under which capital structure is irrelevant, they provided clues about what is required to make capital structure relevant and impact a firm's value. In 1963 they wrote a paper that included the impact of corporate taxes on capital structure. With the tax deductibility of payments, but not payments, and if all their other assumptions held, they concluded that an optimal capital structure consisted of % debt. This paper was then modified when Merton Miller brought in the effects of personal taxes. Bond interest income is taxed at rates than income from stocks (received as dividends and capital gains). Consequently, investors are willing to accept relatively low before-tax returns on stock as compared to the before-tax return on bonds. Most observers believe that interest deductibility has a effect than the favorable tax treatment of income from stocks, so the U. S. tax system favors the corporate use of .