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Cost of Equity

Cost of Equity:

Cost of equity capital is the rate at which investors discount the expected dividends of the firm to determine its share value. Conceptually the cost of equity capital (Ke) defined as the “Minimum rate of return that a firm must earn on the equity financed portion of an investment project in order to leave unchanged the market price of the shares”.

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Cost of equity can be calculated from the following approach:

• Dividend price (D/P) approach

• Dividend price plus growth (D/P + g) approach

• Earning price (E/P) approach

• Realized yield approach.

Cost of Equity Cost of Equity Reviewed by Ikpokolo Francis on Wednesday, April 26, 2017 Rating: 5

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