Cost Of Equity
In financial theory, the return that stockholders require for a company. The traditional formula is the dividend capitalization model:
A firm's cost of equity represents the compensation that the market demands in exchange for owning the asset and bearing the risk of ownership. Investopedia Says:
Let's look at a very simple example: let's say you require a rate of return of 10% on an investment in TSJ Sports. The stock is currently trading at $10 and will pay a dividend of $0.30. Through a combination of dividends and share appreciation you require a $1.00 return on your $10.00 investment. Therefore the stock will have to appreciate by $0.70, which, combined with the $0.30 from dividends, gives you your 10% cost of equity.
The capital asset pricing model (CAPM) is another method used to determine cost of equity. Related Terms:
Capital Asset Pricing Model - CAPM
Capital Structure
Cost Of Capital
Cost Of Debt
Dividend
Equity
Hurdle Rate
Required Rate Of Return
Weighted Average Cost Of Capital - WACC
Weighted Average Cost of Equity - WACE |