Cost of Equity

The Cost of Equity is an investment return which a company offers its shareholders in compensation for their income stream and taking risk of investment with a company.

Cost of Equity which is based on the constant dividend growth model is mathematically expressed here.

Cost of Equity = [Dn ÷ P] + G


Dn = dividend per share to be paid next year

P = average stock price in the year the latest dividend paid

G = expected growth of dividend on next year

A next year dividend is mathematically expressed like this.

Dn = Dc × (1 + G)


Dc = dividend per share for present year


Cost of Equity = [Dc × (1 + G)] ÷ P + G

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