Final answer:
Under the Modigliani and Miller assumptions, an increase in financial leverage does not affect the firm's overall value, as the capital structure is irrelevant in their theoretical framework.
Step-by-step explanation:
Under the simplifying assumptions of Modigliani and Miller, an increase in a firm's financial leverage will not change the overall value of the firm. Modigliani and Miller propose that under a set of certain conditions, such as no taxes, no bankruptcy costs, and efficient markets, the value of a firm is not affected by how it is financed, whether through equity or debt. Therefore, an increase in financial leverage, in the form of more debt, would not affect the total value of the firm.