Cost of Equity Calculator
Cost of Equity Calculator
This cost of equity calculator helps you calculate the cost of equity given the risk-free rate, beta, and equity risk premium.
This is what the cost of equity calculator looks like:
Download the Free Template
Enter your name and email in the form below and download the free template now!
* By submitting your email address, you consent to receive email messages (including discounts and newsletters) regarding Corporate Finance Institute and its products and services and other matters (including the products and services of Corporate Finance Institute's affiliates and other organizations). You may withdraw your consent at any time.
This request for consent is made by Corporate Finance Institute, #1392 - 1771 Robson Street, Vancouver, BC V6G 3B7, Canada. www.corporatefinanceinstitute.com. [email protected]. Please click here to view CFI`s privacy policy.
Cost of Equity is the rate of return a shareholder requires for investing equity into a business. The rate of return an investor requires is based on the level of risk associated with the investment, which is measured as the historical volatility of returns. A firm uses the cost of equity to assess the relative attractiveness of investments, including both internal projects and external acquisition opportunities. Companies typically use a combination of equity and debt financing, with equity capital being more expensive.
We can use the CAPM formula to calculate the cost of equity.
E(Ri) = Rf + βi*ERP
Where:
- E(Ri) = Expected return on asset i
- Rf = Risk free rate of return
- βi = Beta of asset i
- ERP (Equity Risk Premium) = E(Rm) – Rf
More Free Templates
For more resources, check out our business templates library to download numerous free Excel modeling, PowerPoint presentations, and Word document templates.
Excel Tutorial
To master the art of Excel, check out CFI’s Excel Crash Course, which teaches you how to become an Excel power user. Learn the most important formulas, functions, and shortcuts to become confident in your financial analysis.
Launch CFI’s Excel Crash Course now to take your career to the next level and move up the ladder!
