Capital structure (mix of debt and equity) affects a firm's cost of financing (WACC).

• More debt can lower WACC (due to tax benefits), but too much debt increases risk and can raise WACC.
• Firms aim to find the best mix to minimize WACC and maximize value.

Investment projects are evaluated using NPV (Net Present Value) by discounting future cash flows at the firm's WACC.

• NPV > 0 → Accept the project.
• NPV < 0 → Reject the project.

Thus, capital structure affects WACC, which in turn affects NPV and investment decisions.