Cost Of Common Equity Calculator


In the world of finance, calculating the cost of common equity is crucial for businesses to determine the return required by their shareholders. A precise understanding of this metric aids in making informed decisions regarding investment and capital budgeting.

How to Use:

This article provides a step-by-step guide on how to utilize a cost of common equity calculator to derive accurate results. Follow these instructions to efficiently compute this essential financial metric.


The formula for calculating the cost of common equity is as follows:

Example Solve:

Let’s consider a hypothetical scenario:

  • Dividends per share: $2.50
  • Current stock price: $50
  • Growth rate: 5%

Using the formula mentioned above:

Thus, the cost of common equity in this example is 10%.


Q: What is the significance of the cost of common equity in finance?
A: The cost of common equity is essential as it represents the return required by shareholders for investing in a company’s equity. It influences various financial decisions, such as capital budgeting and determining investment opportunities.

Q: How does the growth rate affect the cost of common equity?
A: The growth rate plays a crucial role in determining the cost of common equity. A higher growth rate typically results in a higher cost of common equity, reflecting the expected future earnings and potential of the company.


Calculating the cost of common equity is vital for businesses to evaluate their performance and make strategic financial decisions. Utilizing a reliable calculator ensures accurate computations, enabling companies to effectively manage their resources and maximize shareholder value.

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