How Do You Calculate The Cost Of Equity Capital?
The cost of equity is a return percentage a company must offer investors to spark investment in the company. This is an important measure, because an investor will only invest if he believes he will receive his desired rate of return. Managers also use this measure to calculate weighted-average cost of captial (WACC). WACC calculates the average cost the company needs to pay to raise capital through equity and debt. Find the current market value per share of stock. This is the amount the stock is currently being bought for on the open market. Estimate a projected dividend amount the company will pay next year. The project dividend amount is an estimate investors will make based on previous dividends. For example, if a company always pays $1 per share of dividends each year, an investor would project dividends to be $1 a share for next year. Determine the dividend growth rate for the company. As this calculation can become complicated, the dividend growth rate is normally disclosed by t
