Integrating CAPM, NPV, and Capital Structure in Corporate Investment Decisions

Abstract

Corporate investment decisions are the core of modern corporate finance, and directly determines the realization of a company’s final goal: shareholder wealth maximization. However, the traditional isolated application of the Capital Asset Pricing Model, Net Present Value and capital structure theory often leads to biased investment evaluations, failing to fully reflect the interactive relationship between project risk, financing structure, and project value. The study aims to fill this research gap by integrating these three core financial frameworks. Firstly, it systematically introduces the core definition, application scenarios, advantages, and inherent limitations of CAPM, NPV, and capital structure theory respectively. In addition, it explores the intrinsic links among the three frameworks: CAPM quantifies the systematic risk of projects to determine the cost of equity, capital structure adjusts the debt-equity mix to reshape the Weighted Average Cost of Capital (WACC), and NPV uses the risk-adjusted WACC to evaluate project acceptability. Therefore, a unified systematic valuation framework integrating the three frameworks is constructed. Furthermore, the paper discusses the application of the integrated framework in complex projects and analyzes its practical implementation obstacles, and puts forward future research directions: incorporating behavioral corporate finance and real options theory, and constructing integrated decision support systems based on machine learning and big data. The research enriches the academic research on corporate investment decision-making, corrects the deviations of traditional isolated decision models, and provides guidance for enterprises to make scientific investment decisions and enhance shareholder wealth creation capacity.