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:
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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
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
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