Cost of equity


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Cost of equity

The required rate of return for an investment of 100% equity.

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.
References in periodicals archive ?
With one exception, the expectations for the effects of the control variables on the cost of equity capital are equivalent to their effects on the cost of debt capital (i.
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.
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.
When the difference between ROCA and WCWACC (working capital weighted average cost of capital cost of equity engaged in WC plus short term interest) is positive then the level of current assets proxies by payables and accruals is at a good level.
This finding contributes to the international business and financial literature by identifying national culture as an important institutional variable influencing firms' cost of equity capital around the world.
The most common frequency of re-evaluating the market risk premium is once a year (36 percent of respondents), although 19 percent re-evaluate on a quarterly basis and 23 percent reconsider their market risk premium every time they estimate their cost of equity.
Is there a negative association between the cost of equity capital and the level of disclosure in the three individual intellectual capital categories (human, structural and relational capital)?
In this line of thought, after the adoption of IFRS, the following is expected: reduction of the book-tax conformity, BTD, reduction of informational asymmetry, increase the quality of accounting information, reduction of financial leverage and the cost of equity and debt.
Low beta coefficients of the stocks indicate low market integration, possibility of diversification benefits and underestimated emerging country's cost of equity based on the classical CAPM model.
Our analysis indicates that earnings management associated with MCs increases the cost of debt, although it can marginally reduce the cost of equity and WACC.
It certainly goes without saying how crucial the estimation of a firm's cost of equity is, especially for practical purposes--for equity and firm valuation in mergers and acquisitions, security analysis for investment recommendation purposes, for the determination of value creation by managers, and various other essential corporate finance decisions.
The commonly used formula for determining the cost of equity in international environment is as follows (Damodaran 2006):