---
id: corporate-finance
title: "Corporate Finance: Capital Structure and Valuation"
schema_type: Article
category: business
language: en
confidence: high
last_verified: "2026-05-24"
created_date: "2026-05-24"
generation_method: ai_assisted
ai_models:
  - claude-opus
derived_from_human_seed: true
conflict_of_interest: none_declared
is_live_document: false
data_period: static
atomic_facts:
  - id: fact-biz-cf-001
    statement: "Modigliani-Miller I (1958): in perfect markets, firm value independent of capital structure."
    source_title: Modigliani & Miller, Cost of Capital (AER 1958)
    source_url: https://www.jstor.org/stable/1809766
    confidence: high
  - id: fact-biz-cf-002
    statement: "CAPM (Sharpe 1964, Lintner 1965): expected return = risk-free + β×(market premium)."
    source_title: Brealey, Myers & Allen, Principles of Corporate Finance 14th ed. (McGraw-Hill 2023)
    source_url: https://www.mheducation.com/principle-of-corporate-finance
    confidence: high
  - id: fact-biz-cf-003
    statement: NPV analysis (Fisher 1907) is the standard for evaluating investment decisions.
    source_title: Damodaran, A. Investment Valuation 3rd ed. (Wiley 2012)
    source_url: https://www.wiley.com/en-us/Investment+Valuation%3A+Tools+and+Techniques+for+Determining+the+Value+of+Any+Asset%2C+3rd+Edition-p-9781118130735
    confidence: high
completeness: 0.9
primary_sources:
  - title: Principles of Corporate Finance, 14th Edition
    type: textbook
    year: 2022
    url: https://www.mheducation.com/highered/product/principles-corporate-finance-brealey-myers/M9781264080946.html
    institution: McGraw-Hill
  - title: The Cost of Capital, Corporation Finance and the Theory of Investment
    type: academic_paper
    year: 1958
    url: https://www.jstor.org/stable/1809766
    institution: American Economic Review
known_gaps:
  - Behavioral corporate finance
  - ESG integration in valuation
disputed_statements:
  - statement: No major disputed statements identified
secondary_sources:
  - title: Principles of Corporate Finance (Brealey, Myers, Allen — 14th Edition)
    type: textbook
    year: 2022
    authors:
      - Brealey, Richard A.
      - Myers, Stewart C.
      - Allen, Franklin
    institution: McGraw-Hill
    url: https://www.mheducation.com/highered/product/principles-corporate-finance-brealey-myers/M9781264080946.html
  - title: "Valuation: Measuring and Managing the Value of Companies (McKinsey, 7th Edition)"
    type: textbook
    year: 2020
    authors:
      - Koller, Tim
      - Goedhart, Marc
      - Wessels, David
    institution: Wiley / McKinsey & Company
    url: https://doi.org/10.1002/9781119611905
  - title: The Modern Corporation and Private Property (Berle & Means — Seminal)
    type: textbook
    year: 1932
    authors:
      - Berle, Adolf A.
      - Means, Gardiner C.
    institution: Commerce Clearing House
    url: https://doi.org/10.4324/9781315133188
  - title: McKinsey Global Private Markets Review 2025
    type: report
    year: 2025
    authors:
      - McKinsey & Company
    institution: McKinsey Global Institute
    url: https://www.mckinsey.com/industries/private-capital/our-insights/global-private-markets-review
updated: "2026-05-24"
---
## TL;DR
Corporate finance addresses how firms raise capital and make investment decisions. Capital structure (debt vs equity) and valuation (what assets are worth) are the core concerns.

## Core Explanation
Investment decisions: NPV (accept if >0), IRR, payback period. Financing decisions: debt (bonds, loans — fixed obligations, tax deductible interest) vs equity (stocks — residual claims, dividends discretionary). WACC (Weighted Average Cost of Capital) is the discount rate.

## Detailed Analysis
The CAPM (Capital Asset Pricing Model): E(R) = Rf + β(E(Rm)-Rf). Beta measures systematic risk. Portfolio theory (Markowitz, 1952) demonstrates diversification reduces risk without sacrificing expected return.

## Further Reading
- Aswath Damodaran: Valuation Resources
- Investopedia
- CFA Institute