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Cost of Equity Formula

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Cost of Equity is the rate of return expected by shareholders for investing in a company's stock. Check FAQs

K = ((\frac{D 1}{CP}) + (g \cdot 0.01)) \cdot 100

K - Cost of Equity?D₁ - Dividend in Next Period?CP - Current Share Price?g - Dividend Growth Rate?

Cost of Equity Example

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Here is how the Cost of Equity equation looks like with Values.

Here is how the Cost of Equity equation looks like with Units.

Here is how the Cost of Equity equation looks like.

10.0556 = ((\frac{1.5}{2700}) + (10 \cdot 0.01)) \cdot 100

10.0556 = ((\frac{1.5}{2700}) + (10 \cdot 0.01)) \cdot 100

10.0556 = ((\frac{1.5}{2700}) + (10 \cdot 0.01)) \cdot 100

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Cost of Equity Solution

Follow our step by step solution on how to calculate Cost of Equity?

FIRST Step Consider the formula

K = ((\frac{D 1}{CP}) + (g \cdot 0.01)) \cdot 100

Next Step Substitute values of Variables

∴

K = ((\frac{1.5}{2700}) + (10 \cdot 0.01)) \cdot 100

Next Step Prepare to Evaluate

∴

K = ((\frac{1.5}{2700}) + (10 \cdot 0.01)) \cdot 100

Next Step Evaluate

∴

K = 10.0555555555556

LAST Step Rounding Answer

∴

K = 10.0556

Cost of Equity Formula Elements

Variables

Cost of Equity

Cost of Equity is the rate of return expected by shareholders for investing in a company's stock.

Symbol: K

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Cost of Equity

Dividend in Next Period

Dividend in Next Period refers to the expected payment to shareholders by a company for each share of stock they own in the upcoming period.

Symbol: D₁

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Dividend in Next Period

Current Share Price

Current Share Price refers to the most recent price at which a single share of a company's stock was traded on the open market.

Symbol: CP

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Current Share Price

Dividend Growth Rate

Dividend Growth Rate is the adjusted rate of growth in dividends, accounting for the expenses incurred when a company issues new securities.

Symbol: g

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Dividend Growth Rate

Other formulas in Strategic Financial Management category

Go Earnings Yield

EY = (\frac{EPS}{MPS}) \cdot 100

Go Earnings Yield using PE Ratio

EY = (\frac{1}{PE}) \cdot 100

Go Dividend Rate

DR = (\frac{DPS}{CP}) \cdot 100

Go Share Exchange Ratio

ER = \frac{OPTS}{ASP}

How to Evaluate Cost of Equity?

Cost of Equity evaluator uses Cost of Equity = ((Dividend in Next Period/Current Share Price)+(Dividend Growth Rate*0.01))*100 to evaluate the Cost of Equity, The Cost of Equity formula is the rate of return expected by shareholders without factoring in expenses from issuing new equity securities. Cost of Equity is denoted by K symbol.

How to evaluate Cost of Equity using this online evaluator? To use this online evaluator for Cost of Equity, enter Dividend in Next Period (D₁), Current Share Price (CP) & Dividend Growth Rate (g) and hit the calculate button.

FAQs on Cost of Equity

What is the formula to find Cost of Equity?

The formula of Cost of Equity is expressed as Cost of Equity = ((Dividend in Next Period/Current Share Price)+(Dividend Growth Rate*0.01))*100. Here is an example- 10.05556 = ((1.5/2700)+(10*0.01))*100.

How to calculate Cost of Equity?

With Dividend in Next Period (D₁), Current Share Price (CP) & Dividend Growth Rate (g) we can find Cost of Equity using the formula - Cost of Equity = ((Dividend in Next Period/Current Share Price)+(Dividend Growth Rate*0.01))*100.

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Cost of Equity Formula

Cost of Equity Example

Cost of Equity Solution

Cost of Equity Formula Elements

Other formulas in Strategic Financial Management category

How to Evaluate Cost of Equity?

FAQs on Cost of Equity

Variable Name