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explain the cost of equity

explain the cost of equity
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Answer #1

Cost of equity

The cost of equity is part of the cost of capital. The cost of equity is the rate at which, investors discounted the expected dividends of the firm to determine the firm's share value.

cost of equity is the ratio of rate of return that a company pay its equity investers

Cost of equity is calculated from the following methods

1, Dividend Price Approach

cost of equity =DPS/ Net proceeds

2, Divident Price +Growth approach

cost of equity =(DPS/ Net proceeds) +Growth rate

3, Earing Price approach

cost of equity =EPS/ Net proceeds

4, Realized yield approach

cost of equity =Present Value of Discounting Factor *DPS

5, Capital Asset Pricing Model (CAPM)

cost of equity =

Rm= market risk

= beta

Rf = Risk free rate

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