Simplify Your Workflow: Search MiniWebtool.
Add Extension
Home Page > Financial Calculators > Investment Calculators > Cost of Equity Calculator

Cost of Equity Calculator

Calculate cost of equity using Dividend Discount Model (DDM) and Capital Asset Pricing Model (CAPM) with step-by-step formulas, sensitivity analysis, and professional interpretation.

Cost of Equity Calculator
Select Calculation Method
Quick Examples
Dividend Discount Model (DDM)
Gordon Growth Model for dividend-paying stocks
$
$
%
Capital Asset Pricing Model (CAPM)
Risk-based approach using beta coefficient
%
%

Embed Cost of Equity Calculator Widget

About Cost of Equity Calculator

Welcome to the Cost of Equity Calculator, a comprehensive financial tool that calculates the return shareholders require on their investment using two widely-accepted methods: the Dividend Discount Model (DDM) and the Capital Asset Pricing Model (CAPM). Whether you are analyzing investment opportunities, valuing companies, or making capital budgeting decisions, this calculator provides professional-grade analysis with step-by-step breakdowns.

What is Cost of Equity?

Cost of equity represents the return that investors require for providing capital to a company. It reflects the opportunity cost of investing in a particular stock rather than other investments with similar risk profiles. Cost of equity is a critical component in:

Calculation Methods

Dividend Discount Model (DDM)

Also known as the Gordon Growth Model, DDM estimates cost of equity based on expected dividends and dividend growth:

DDM Formula
$$K_e = \frac{D_1}{P_0} + g$$

Where:

Best used for: Mature companies with stable, predictable dividend policies (utilities, consumer staples, REITs).

Capital Asset Pricing Model (CAPM)

CAPM estimates cost of equity based on systematic risk measured by beta:

CAPM Formula
$$K_e = R_f + \beta \times (R_m - R_f)$$

Where:

Best used for: Any publicly traded stock, especially growth companies that do not pay dividends.

Understanding Beta

Beta measures a stock's volatility relative to the overall market:

Beta ValueInterpretationExamples
β < 1Less volatile than market, defensiveUtilities, Consumer Staples
β = 1Moves with the marketDiversified Index Funds
β > 1More volatile than market, aggressiveTech, Growth Stocks
β < 0Moves opposite to market (rare)Gold, Some Hedging Instruments

Typical Cost of Equity Ranges

Company TypeTypical RangeKey Characteristics
Large-Cap Blue Chips6% - 10%Stable earnings, low beta, established markets
Mid-Cap Growth10% - 14%Higher growth potential, moderate risk
Small-Cap / High Growth14% - 20%Higher volatility, emerging businesses
Emerging Markets12% - 25%Country risk, currency risk, political risk

DDM vs CAPM: When to Use Each

FactorDDMCAPM
Dividend PolicyRequires consistent dividendsWorks for any stock
Growth StageMature, stable companiesAny stage, including growth
Data RequirementsDividend history, growth rateBeta, risk-free rate, market return
AssumptionsConstant growth rate foreverBeta accurately captures risk
LimitationsCannot use for non-dividend stocksBeta can be unstable over time

Pro Tip: For companies that pay dividends, calculate using both methods and compare results. If they differ significantly, investigate why and consider using a weighted average.

How to Use This Calculator

  1. Select your method: Choose DDM for dividend-paying stocks, CAPM for any stock, or Both for comprehensive analysis.
  2. Enter required inputs: For DDM: expected dividend, current price, growth rate. For CAPM: risk-free rate, beta, market return.
  3. Review results: Examine the calculated cost of equity, step-by-step breakdown, and sensitivity analysis.
  4. Interpret findings: Use the interpretation guide to understand what the results mean for your investment decisions.

Frequently Asked Questions

What is Cost of Equity?

Cost of equity is the return a company requires to decide if an investment meets capital return requirements. It represents the compensation the market demands in exchange for owning the asset and bearing the risk of ownership. Cost of equity is used in corporate finance to evaluate investments and in valuation models like DCF analysis.

What is the Dividend Discount Model (DDM) formula for Cost of Equity?

The DDM formula is: Cost of Equity = (Expected Dividends per Share / Current Stock Price) + Dividend Growth Rate. This model is also known as the Gordon Growth Model and works best for mature companies with stable dividend policies.

What is the CAPM formula for Cost of Equity?

The CAPM formula is: Cost of Equity = Risk-Free Rate + Beta × (Market Return - Risk-Free Rate). The term (Market Return - Risk-Free Rate) is called the Equity Risk Premium. CAPM is widely used because it accounts for systematic risk through beta.

When should I use DDM vs CAPM?

Use DDM for mature companies with consistent, predictable dividends. Use CAPM for growth companies that do not pay dividends or have irregular dividend patterns. Many analysts calculate both and use an average or weighted combination for a more robust estimate.

What is a typical cost of equity range?

Cost of equity typically ranges from 8% to 15% for most publicly traded companies. Lower values (6-10%) are common for stable, large-cap companies, while higher values (12-20%) apply to growth stocks, small-caps, or companies in emerging markets with higher risk profiles.

Additional Resources

Reference this content, page, or tool as:

"Cost of Equity Calculator" at https://MiniWebtool.com/cost-of-equity-calculator/ from MiniWebtool, https://MiniWebtool.com/

by miniwebtool team. Updated: Jan 29, 2026

Related MiniWebtools:

Debt to Equity Ratio Calculator
Equity Multiplier Calculator
Equity Ratio Calculator
Return On Equity Calculator

Investment Calculators:

Top & Updated:

Random PickerRandom Name PickerRelative Standard Deviation CalculatorLine CounterSort NumbersFPS ConverterRemove SpacesMAC Address GeneratorMAC Address LookupFeet and Inches to Cm ConverterWord to Phone Number ConverterBatting Average CalculatorRandom Quote GeneratorBitwise CalculatorPercent Off CalculatorFacebook User ID LookupLog Base 10 CalculatorSaturn Return CalculatorSum CalculatorNumber of Digits CalculatorSHA256 Hash GeneratorRandom Truth or Dare GeneratorERA CalculatorRoman Numerals ConverterDecimal to BCD ConverterAI ParaphraserCm to Feet and Inches ConverterSun, Moon & Rising Sign Calculator 🌞🌙✨Binary to Gray Code ConverterVideo to Image ExtractorOctal CalculatorMP3 LooperSquare Root (√) CalculatorAI Punctuation AdderPhone Number ExtractorNumber to Word ConverterFirst n Digits of PiBCD to Decimal ConverterOutlier CalculatorStandard Error CalculatorSalary Conversion CalculatorDay of Year CalendarRandom Credit Card GeneratorGray Code to Binary ConverterQuotient and Remainder CalculatorText FormatterCompound Growth CalculatorTime Duration CalculatorRemove Audio from VideoCompare Two StringsOn Base Percentage CalculatorMerge VideosSlugging Percentage CalculatorRandom Birthday GeneratorConvolution CalculatorAverage Deviation CalculatorCM to Inches ConverterBinary to BCD ConverterModulo CalculatorAudio SplitterIP Address to Hex ConverterRemove AccentScientific Notation to Decimal ConverterPercent Growth Rate CalculatorAntilog CalculatorMaster Number CalculatorLeap Years ListEmail ExtractorBonus CalculatorRandom Group GeneratorRemove Lines Containing...Random Fake Address GeneratorRandom Meal GeneratorImage SplitterList of Prime NumbersFirst n Digits of eMedian CalculatorRandom Superpower GeneratorDay of the Year Calculator - What Day of the Year Is It Today?Log Base 2 CalculatorSHA512 Hash GeneratorSample Standard Deviation CalculatorReverse VideoLove Compatibility CalculatorRemove Leading Trailing SpacesMAC Address AnalyzerRandom Emoji GeneratorNatural Log CalculatorURL ExtractorInvisible Text GeneratorRandom IMEI GeneratorHex to BCD ConverterRandom Object GeneratorName Number CalculatorVideo CompressorExponential Decay CalculatorSquare Numbers ListPER CalculatorVideo CropperMorse Code GeneratorAdd Prefix and Suffix to TextOPS CalculatorWHIP CalculatorSort Lines AlphabeticallyBCD to Binary ConverterLottery Number GeneratorBCD to Hex ConverterList RandomizerBreak Line by CharactersAverage CalculatorPVIFA CalculatorWAR CalculatorHypotenuse CalculatorActual Cash Value CalculatorNumber ExtractorAngel Number CalculatorRoot Mean Square CalculatorSum of Positive Integers CalculatorSHA3-256 Hash GeneratorAI Sentence Expander📅 Date CalculatorLbs to Kg ConverterHex to Decimal ConverterRandom String GeneratorAmortization CalculatorMarkup CalculatorPVIF CalculatorDecimal to Hex ConverterList of Fibonacci NumbersRandom Number PickerBlood Donation Time CalculatorField Goal Percentage CalculatorRandom Line PickerRatio to Percentage CalculatorAPY to APR CalculatorSort Text By LengthOne Rep Max (1RM) CalculatorName RandomizerRandom Animal GeneratorFixed Deposit CalculatorPPM to Percent ConverterCube Numbers ListCaesar Cipher ToolPercent to PPM ConverterSRT to TXT Converterkg to lbs ConverterXML ValidatorArithmetic Mean CalculatorBoard Foot CalculatorSquareness Checker (3-4-5 Rule) 📐Miter Angle CalculatorSlope and Grade CalculatorSine CalculatorCosine CalculatorTangent CalculatorArcsin CalculatorArccos (Inverse Cosine) CalculatorArctan CalculatorArctan2 CalculatorCosecant/Secant/Cotangent CalculatorHyperbolic Functions CalculatorRight Triangle CalculatorGeneral Triangle SolverLaw of Sines CalculatorLaw of Cosines CalculatorDMS to Decimal Degrees ConverterDecimal Degrees to DMS ConverterPolar to Cartesian ConverterCartesian to Polar Coordinates ConverterInteractive Unit Circle VisualizerTrigonometric Identities CalculatorTrigonometric Function GrapherAlgebraic Expression SimplifierRadical SimplifierRational Expression CalculatorPolynomial Factoring CalculatorExpand Polynomials CalculatorPolynomial Long Division CalculatorSynthetic Division CalculatorLinear Equation SolverAbsolute Value Equation SolverRadical Equation SolverSystem of Linear Equations SolverInequality SolverAbsolute Value Inequality SolverSystem of Inequalities GrapherFunction GrapherDomain and Range CalculatorInverse Function CalculatorFunction Composition CalculatorVertex and Axis of Symmetry CalculatorX and Y Intercept CalculatorHTML Entity Encoder/DecoderURL Slug GeneratorJSON String Escape/UnescapeMarkdown Table GeneratorSmart Quotes RemoverDaily Time Savings CalculatorLorem Ipsum GeneratorReadability Score CalculatorKeyword Density CheckerBionic Reading ConverterText to Speech ReaderFancy Text GeneratorZalgo Text GeneratorUpside Down Text GeneratorASCII Art GeneratorList Difference CalculatorText Column ExtractorText to SQL List ConverterInvisible Character RemoverStock Average CalculatorPosition Size CalculatorMargin Call CalculatorShort Selling Profit CalculatorRisk of Ruin CalculatorBlack-Scholes Option Pricing CalculatorOption Greeks CalculatorImplied Volatility CalculatorOptions Profit CalculatorImpermanent Loss CalculatorCrypto Arbitrage CalculatorSatoshi to USD ConverterCrypto Leverage CalculatorPivot Point CalculatorFibonacci Extension CalculatorStop Loss & Take Profit CalculatorKelly Criterion CalculatorMartingale Strategy CalculatorCompound Daily Interest CalculatorPip Value CalculatorGaussian Distribution GeneratorRandom Tournament Bracket GeneratorRandom Color Palette GeneratorRandom Country GeneratorRandom JSON GeneratorRandom User-Agent GeneratorRandom Coordinate GeneratorRandom Date GeneratorRandom Time GeneratorRandom IP Address GeneratorRandom Playing Card GeneratorMagic 8-BallRock Paper Scissors GeneratorCoin FlipperDice RollerSpin the WheelAquarium Volume & Stocking CalculatorAquarium Substrate CalculatorScale Model Conversion CalculatorPlant Spacing CalculatorDice Roll Probability CalculatorDepth of Field (DoF) CalculatorGolden Hour / Blue Hour CalculatorPrint Size & Resolution Calculator (DPI/PPI)Soap Making Lye Calculator (SAP)Candle Wax & Fragrance Oil CalculatorHomebrew ABV Calculator (Alcohol by Volume)Coffee Brew Ratio CalculatorBrine and Salinity CalculatorYarn CalculatorFabric CalculatorCross-Stitch Size CalculatorBaker's Percentage CalculatorDough Hydration CalculatorBaking Pan Size ConverterYeast Conversion CalculatorJSON to YAML ConverterJWT DecodercURL to JSON ConverterSQL FormatterCrontab Expression GeneratorFavicon GeneratorSVG OptimizerHtaccess Redirect GeneratorResistor Color Code CalculatorOhm's Law CalculatorVoltage Drop CalculatorPCB Trace Width CalculatorBattery Life CalculatorRandom PIN GeneratorRandom NanoID GeneratorRandom Port Number GeneratorRandom User Persona GeneratorRandom Writing Prompt GeneratorRandom Haiku GeneratorRandom Domain Name GeneratorRandom Movie PickerRandom Cocktail Recipe GeneratorRandom Activity GeneratorRandom Excuse GeneratorRandom US State GeneratorLemonade Stand CalculatorPizza Value CalculatorVampire Apocalypse CalculatorChristmas Tree CalculatorParking Ratio CalculatorGooglebot Crawl Size CheckerZombie Survival Time CalculatorHelium Balloon Lift CalculatorKinetic Energy Chicken CookerTeleportation Error Rate CalculatorHamster Power CalculatorBanana Radiation CalculatorFalling Through Earth CalculatorPenny Drop Impact CalculatorPopcorn Fill Room CalculatorLego Brick House CalculatorWedding Alcohol CalculatorPizza Party PlannerCaffeine Overdose CalculatorBBQ CalculatorTaco Bar CalculatorBeer Chill Time CalculatorSpaghetti Portion CalculatorCocktail ABV CalculatorChocolate Fountain CalculatorCheese Board Calculator