Cost of equity

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Cost of equity

The required rate of return for an investment of 100% equity.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Cost of Equity

The required rate of return that a stockholder demands from a publicly-traded company in exchange for buying a share and assuming the risk associated with it. It is calculated thusly:

Cost of Equity = ( Dividends per share / Price per share ) + Dividend growth rate.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
References in periodicals archive ?
It is possible to associate cost of equity estimation methods with a market's degree of integration (Fuenzalida & Mongrut, 2010; Pereiro, 2001; Stulz, 1999), as is illustrated in Table 1.
Based on equations (3) and (4) the cost of equity can be than expressed as the follows:
Two fundamental relationships form the core knowledge base that students should possess about the cost of equity, both from a corporate finance perspective and an investment perspective.
The forgoing describes the cost of equity capital for a particular firm.
The literature regarding accounting quality and the cost of equity has thus far focused primarily on publicly traded firms.
The interest rate for calculating the opportunity cost of equity is based on the respective year's December average LIBOR (London Inter-Bank Offered Rate) for U.S.
Providing the practical results about studying the effect of information asymmetry on cost of equity capital and cost of debts on the actual and potential investors and creditors and also managers and helping these groups in making correct and reasonable financial decisions.
(2001) proposed an alternative technique for estimating the cost of equity. They used a discounted residual income model to generate a market implied cost of capital.
* In a cross-country sample of 32 countries during 1992-2006, we find that the cost of equity capital tends to be higher in more individualistic and less uncertainty avoiding societies consistent with their greater risk-taking orientation.
Keywords: Corporate governance, cost of equity, implied cost of equity, Asian countries.
Capital investment and cost of capital are the important issues in corporate finance".4 Discussion is available mostly from developed economies on how companies evaluate projects, cost of equity calculation and adjustment of discount rate".5 Answers to such questions are difficult from secondary data the researcher used survey answer for fulfilling the research objectives.