The CAPM is a financial model in which the cost of capital of a stock or portfolio of stocks equals a risk-free rate plus a risk premium which is equivalent to the systematic risks associated with the stock or portfolio of stocks. The CAPM is a very important model in business valuation as the foundation of the computation of the Weight Average Cost of Capital (WACC) which is the discount rate applied to convert future cash flows to value. The variant of CAPM used for the computation of the cost of equity component of WACC is: Cost of Equity = Rf + bx(MRP) Where: Rf = Risk-Free Rate bx = Beta (MRP) = Market Risk Premium bx(MRP) = Equity Risk Premium