# Cost of Equity Calculator

URL: https://speedycalculator.com/calculators/finance/cost-of-equity/
Last updated: 2026-10-25

> The cost of equity calculator estimates the return shareholders require, using the dividend discount (Gordon growth) model for dividend payers or the CAPM for companies that don't pay dividends.

## Inputs

- Does the company pay a dividend?
- Dividend per share (next year)
- Current share price
- Dividend growth rate (%)
- Risk-free rate (%)
- Beta
- Expected market return (%)

## Results

- Cost of equity
- Dividend yield part

## Formula

```
Dividend model: cost of equity = next year's dividend ÷ share price + dividend growth rate
CAPM: cost of equity = risk-free rate + β × (market return − risk-free rate)
```

## Explanation

The cost of equity is the hurdle rate equity investors demand for their risk. Using both methods and comparing the results is a good sanity check.

### How to use the Cost of Equity Calculator

- **Does the company pay a dividend?**
- **Dividend per share (next year)**
- **Current share price**
- **Dividend growth rate**
- **Risk-free rate**
- **Beta**
- **Expected market return**

Results update as you type, and every field accepts the units shown in its menu.

### How it works

Choose whether the company pays a dividend, then enter the figures for that method.

### Tips

- Take figures from the same financial statements and the same fiscal year.
- Compare ratios with companies in the same industry, not across industries.
- Use several valuation measures together; no single ratio tells the whole story.
- Market prices change every second – refresh the share price before you rely on a result.

### Common mistakes to avoid

- Mixing per-share figures with company totals.
- Using trailing earnings for one company and forward earnings for another.
- Forgetting dilution from options and convertible securities.

### Inputs explained

FieldWhat to enterDoes the company pay a dividend?Choose one: Yes – dividend discount model, No – CAPMDividend per share (next year)Amount in your currencyCurrent share priceAmount in your currencyDividend growth rateIn %Risk-free rateIn %BetaA numberExpected market returnIn %

### Example values

How the main result changes when **Dividend per share** changes and everything else stays at the example values above:

Dividend per share (next year)Cost of equity (%)1.261.872.48393.6104.812

## Worked example

Inputs — Does the company pay a dividend?: Yes – dividend discount model; Dividend per share (next year): $2.4; Current share price: $60; Dividend growth rate: 4 %; Risk-free rate: 4.2 %; Beta: 1.2; Expected market return: 9.5 %.

Results — **Cost of equity = 8 %**; Dividend yield part = 4 %.

## FAQ

**What is the cost of equity?**
The return shareholders expect for owning the stock.

**Which method is better?**
DDM suits stable dividend payers; CAPM works for any listed company.

**Why is equity more expensive than debt?**
Shareholders are paid last and take more risk.

**What formula does the Cost of Equity Calculator use?**
Dividend model: cost of equity = next year's dividend ÷ share price + dividend growth rate.


## Sources

- [Corporate Finance Institute – financial ratios](https://corporatefinanceinstitute.com/)