Cost of Equity Calculator

✖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.ⓘ Dividend in Next Period [D₁]			+10% -10%
✖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.ⓘ Current Share Price [CP]			+10% -10%
✖Dividend Growth Rate is the adjusted rate of growth in dividends, accounting for the expenses incurred when a company issues new securities.ⓘ Dividend Growth Rate [g]			+10% -10%

✖Cost of Equity is the rate of return expected by shareholders for investing in a company's stock.ⓘ Cost of Equity [K]

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Formula

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Cost of Equity

Formula

`"K" = (("D"_{"1"}/"CP")+("g"*0.01))*100`

Example

`"10.05556"=(("1.5"/"2700")+("10"*0.01))*100`

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Cost of Equity Solution

STEP 0: Pre-Calculation Summary

Formula Used

Cost of Equity = ((Dividend in Next Period/Current Share Price)+(Dividend Growth Rate*0.01))*100
K = ((D₁/CP)+(g*0.01))*100
This formula uses 4 Variables

Variables Used

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

STEP 1: Convert Input(s) to Base Unit

Dividend in Next Period: 1.5 --> No Conversion Required
Current Share Price: 2700 --> No Conversion Required
Dividend Growth Rate: 10 --> No Conversion Required

STEP 2: Evaluate Formula

Substituting Input Values in Formula

K = ((D₁/CP)+(g*0.01))*100 --> ((1.5/2700)+(10*0.01))*100

Evaluating ... ...

K = 10.0555555555556

STEP 3: Convert Result to Output's Unit

10.0555555555556 --> No Conversion Required

FINAL ANSWER

10.0555555555556 ≈ 10.05556 <-- Cost of Equity

(Calculation completed in 00.004 seconds)

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Created by Keerthika Bathula

Indian Institute of Technology, Indian School of mines, Dhanbad (IIT ISM Dhanbad), Dhanbad

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< 18 Strategic Financial Management Calculators

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Go Money Market Discount Rate = (Year/Days of Maturity)*(Face Value of Money Market Instrument-Present Value of Money Market Instrument)/Face Value of Money Market Instrument

Effective Convexity

Go Effective Convexity = (Price of Bond When Yield is Decreased+Price of Bond When Yield is Increased-(2*Initial Price of Bond))/((Change in Curve)^2*Initial Price of Bond)

Add on Rate

Go Add on Rate = ((Year/Days)*((Amount Paid at Maturity Including Interest)-Present Value of Money Market Instrument)/(Amount Paid at Maturity Including Interest))

Change in Price of Full Bond

Go Percentage Change in Price of Bond = (-Annual Modified Duration*Change in Yield)+(1/2*Annual Convexity*(Change in Yield)^2)

Value of Right using New Shares

Go Value of Right = Number of New Shares*(Market Price-Issue Price of New Share)/Total Number of All Shares

Single Month Mortality

Go Single Month Morality = Prepayment for a Month/(Beginning Mortgage Balance for Month-Scheduled Principal Repayment for Month)

Value of Right

Go Value of Right per Share = (Stock Price-Right Subscription Price)/Number of Rights to Buy a Share

Cost of Equity

Go Cost of Equity = ((Dividend in Next Period/Current Share Price)+(Dividend Growth Rate*0.01))*100

Unlevered Beta

Go Unlevered Beta = Levered Beta/(1+((1-Tax Rate)*(Debt/Equity)))

Levered Beta

Go Levered Beta = Unlevered Beta*(1+((1-Tax Rate)*(Debt/Equity)))

Price Value of Basis Point

Go Price Value of Basis Point = (Price of Bond When Yield is Decreased-Price of Bond When Yield is Increased)/2

Price of Bond

Go Price of Bond = Face Value*(1+Implied Discount Rate)^Holding Period

Approximate Macaulay Duration

Go Approximate Macaulay Duration = Approximate Modified Duration*(1+Rate of Interest)

Conversion Parity Price

Go Conversion Parity Price = Value of Convertible Security/Conversion Ratio

Share Exchange Ratio

Go Exchange Ratio = Offer Price for Target's Share/Acquirer's Share Price

Earnings Yield

Go Earnings Yield = (Earnings per Share/Market Price per Share)*100

Dividend Rate

Go Dividend Rate = (Dividend per Share/Current Share Price)*100

Earnings Yield using PE Ratio

Go Earnings Yield = (1/Price-Earnings (PE) Ratio)*100

Cost of Equity Formula

Cost of Equity = ((Dividend in Next Period/Current Share Price)+(Dividend Growth Rate*0.01))*100
K = ((D₁/CP)+(g*0.01))*100

What is Cost of Equity ?

The cost of equity excluding flotation costs refers to the rate of return that shareholders expect to earn on their investment in a company's stock, without considering the expenses associated with issuing new equity securities. This metric is essential for companies and investors as it provides a clear picture of the return expected by shareholders based solely on the risk associated with holding equity in the company. It is calculated using various models such as the Capital Asset Pricing Model (CAPM) or the Dividend Discount Model (DDM), taking into account factors like the risk-free rate, market risk premium, and beta. Accurate estimation of the cost of equity excluding flotation costs is crucial for companies to evaluate their cost of capital, determine appropriate investment projects, and make strategic financial decisions.

How to Calculate Cost of Equity?

Cost of Equity calculator uses Cost of Equity = ((Dividend in Next Period/Current Share Price)+(Dividend Growth Rate*0.01))*100 to calculate 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 calculate Cost of Equity using this online calculator? To use this online calculator for Cost of Equity, enter Dividend in Next Period (D₁), Current Share Price (CP) & Dividend Growth Rate (g) and hit the calculate button. Here is how the Cost of Equity calculation can be explained with given input values -> 10.05556 = ((1.5/2700)+(10*0.01))*100.

FAQ

What is 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 and is represented as K = ((D₁/CP)+(g*0.01))*100 or Cost of Equity = ((Dividend in Next Period/Current Share Price)+(Dividend Growth Rate*0.01))*100. 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, 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 & Dividend Growth Rate is the adjusted rate of growth in dividends, accounting for the expenses incurred when a company issues new securities.

How to calculate 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 is calculated using Cost of Equity = ((Dividend in Next Period/Current Share Price)+(Dividend Growth Rate*0.01))*100. To calculate Cost of Equity, you need Dividend in Next Period (D₁), Current Share Price (CP) & Dividend Growth Rate (g). With our tool, you need to enter the respective value for Dividend in Next Period, Current Share Price & Dividend Growth Rate and hit the calculate button. You can also select the units (if any) for Input(s) and the Output as well.

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