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:

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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(R_i) = R_f + β_i*ERP

where:

E(R_i) = Expected return on asset i

R_f = Risk free rate of return

β_i = Beta of asset i

ERP (Equity Risk Premium) = E(R_m) – R_f

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