Capital Asset Pricing Model — determines the cost of equity from systematic risk: r_e = r_f + β · (r_m - r_f) + r_s, where r_f is the risk-free rate (typically 10Y UST), β is the firm's relevered equity beta, (r_m - r_f) is the equity risk premium (typically 5–7%), and r_s is a size/illiquidity premium (1–4% for private companies). For LBO targets, β must be unlevered from public comparables via β_U = β_L / [1 + (1-t) · D/E] and re-levered to the target's post-close capital structure.