Capital Asset Pricing Model (CAPM)
Divestopedia Explains Capital Asset Pricing Model (CAPM)CAPM is a calculation of the risk related to the equity of a business. The model takes into account the risk of the particular business and the industry it operates in. It also tasks into account movements in returns for the market as a whole.
The CAPM based rates of return represent a rate of return on equity, not a discount rate or WACC. To calculate the discount rate or WACC, the cost of debt and appropriate capital structure must be assess. A growth rate deducted from the WACC will result in a capitalization rate that can be applied to free cash flows before interest costs to determine enterprise value.
- The Third Ingredient to a Successful Exit - Valuation
- Magic Tricks to Help You Get the Valuation You Want
- How to Increase the Value of Your Business - Even If You're Not Selling
- Business Valuation Excel Template: 10 Simple Steps to Success
- Flirting with a Single Buyer for Your Business
- Private Equity Deal Sourcing Strategies in 2022