Editing Corporate Finance (section)

== <span style="color: #FFFFFF;">Understanding</span> ==
Corporate finance is understood through '''Value Creation''' and '''The Time Value of Money'''.

'''1. The Goal: Maximizing Value''':
Managers are "Agents" for the owners (Shareholders). Their job is not just to "make money" today, but to make decisions that increase the "Total Value" of the company over time.
* If a manager buys a private jet for themselves instead of a new factory for the company, this is an '''Agency Problem'''.

'''2. Capital Budgeting (The 'What')''':
Companies have limited money. They must choose which projects to fund.
* '''NPV Rule''': If the project's NPV is positive (meaning it makes more than it costs, after accounting for time), you should do it.
* '''Payback Period''': How many years does it take to get the original investment back?

'''3. Capital Structure (The 'How')''':
Should we borrow money (Debt) or sell pieces of the company (Equity)?
* '''Debt''': Cheaper (because interest is tax-deductible), but risky (if you can't pay the bank, you go bankrupt).
* '''Equity''': Safer (you don't have to pay back shareholders), but expensive (you are giving away future profits forever).
The perfect mix is the one that results in the lowest '''WACC'''.

'''The Time Value of Money (TVM)''': A dollar today is worth more than a dollar tomorrow. Why? Because you could invest the dollar today and earn interest. Corporate finance uses "Discounting" to pull "Future Money" back to "Today's Dollars" to see if a project is worth it.
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