The Cost of Equity Calculator is used to calculate the cost of equity using the dividend growth approach.
In finance, the cost of equity refers to a shareholder's required rate of return on an equity investment. It is the rate of return that could have been earned by putting the same money into a different investment with equal risk.
There are two ways to determine cost of equity: the dividend growth approach and the capital asset pricing model (CAPM) approach. This calculator uses the dividend growth approach. The following is the calculation formula for the cost of equity using the dividend approach:
Cost of Equity = (Next Year's dividends per share / Current market value of stock) + Growth rate of dividends