How do you find a company's Cost of Equity(COE)?
The "Cost of Equity", also known as the Cost of Capital is the return amount, usually referred to as the rate of return, a company pays back to its shareholders or investors for their investment on the company through shares. The Cost of Equity is paid to the share holders to compensate for the risk they undertake by investing their capital on the firm. In other words, it can also be termed as the rate of return that a shareholder could have earned through an other investment with the same risk.
Cost of Equity is an offer to the shareholders to invest in the firm. There are two ways to determine the cost of equity, which are listed below. This tutorial will help you to learn how to calculate cost of equity using this two methods.
Methods to Calculate Cost of Equity:
Dividend Growth Model (Dividend Discount Model)
CAPM (Capital Asset Pricing Model)