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.
Inputs explained
| Field | What to enter |
|---|---|
| Does the company pay a dividend? | Choose one: Yes (dividend discount model) or No (CAPM) |
| Dividend per share (next year) | Amount in your currency |
| Current share price | Amount in your currency |
| Dividend growth rate | In % |
| Risk-free rate | In % |
| Beta | A number |
| Expected market return | In % |
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 (%) |
|---|---|
| 1.2 | 6 |
| 1.8 | 7 |
| 2.4 | 8 |
| 3 | 9 |
| 3.6 | 10 |
| 4.8 | 12 |
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)
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 %.
Results: Cost of equity = 8 %; Dividend yield part = 4 %.
Frequently asked questions
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.