William L. Baldwin and Thomas J. Velk [1] point out a basic flaw in the famous Modigliani-Miller cost of capital thesis [2]. The purpose of this article is to show that the flaw, while clearly present, can be repaired and that the M-M conclusions are not affected. The M-M thesis basically asserts that two firms cannot have different market values simply by reason of different financial structures. Using the M-M formulation, consider two firms for which the expected return is the same, X. Both firms are of the same risk class; that is, the random variable X representing the distribution of possible earnings before interest on any debt is the same for both. Company 1 is financed entirely by stock S1, and Company 2 by stock S2 and debt D2. Thus: