Cost of Equity


Definition: Cost of Equity is the minimum annual Rate of Return a company has to offer to its ordinary shareholders for waiting for their returns and for bearing risk. The risk consists of both the market risk and the company-specific risk.
Therefore the COE varies from one company to another.
COE can be calculated by dividing the dividends per share for next year by the current market value of the Stock, and then adding the growth rate of the dividends.
COE is part of a firm's cost of capital, as are cost of debt and cost of prefered stock.


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