Cost of Equity Calculator - Young Investor Calculator

Calculate Cost of Equity

Estimate the cost of equity using the Capital Asset Pricing Model (CAPM) and Dividend Discount Model (DDM). Enter values in Ghanaian Cedi (GHS) for dividends and stock price, and percentages for rates. Example: Use data for Access Bank Ghana (174 million shares).

Formulas

CAPM: Cost = Risk-Free Rate + Beta × (Market Return - Risk-Free Rate)

DDM: Cost = (Dividend per Share / Stock Price) + Growth Rate

CAPM Parameters

Risk-Free Rate (%)

Beta

Market Return (%)

DDM Parameters

Dividend per Share (GHS)

Current Stock Price (GHS)

Dividend Growth Rate (%)

Weighting Parameters

CAPM Weight (%)

DDM Weight (%)

Cost of Equity Results

Weighted Average Cost of Equity

0.00%

Interpretation:

Method	Cost of Equity (%)	Weight (%)

Use the weighted average cost of equity in DCF or WACC calculations for valuation purposes.

Understanding Cost of Equity

The cost of equity represents the return required by shareholders for investing in a company. It’s a key input for DCF valuations and WACC calculations, using methods like CAPM and DDM.

Two Methods

CAPM and DDM

CAPM uses market risk; DDM uses dividend data. Combine them for a balanced estimate.

Accurate Data

Source Reliable Inputs

Use financial websites like Yahoo Finance or gse.com.gh for accurate data.

How to Use the Cost of Equity Calculator

Enter CAPM Parameters
Input risk-free rate, beta, and market return to calculate cost of equity using CAPM.
Enter DDM Parameters
Provide dividend per share, stock price, and dividend growth rate for DDM.
Assign Weights
Specify weights for CAPM and DDM results (must sum to 100%).
Calculate and Review
Click “Calculate” to get the weighted average cost of equity. Use it in DCF or WACC calculations.

Key Applications

Input for DCF valuations to discount future cash flows
Component of Weighted Average Cost of Capital (WACC)
Assessing required returns for equity investments
Comparing investment opportunities in Ghanaian or global markets

Download Guide Watch Tutorial

To calculate an accurate cost of equity, source reliable financial data for CAPM and DDM. Here’s how to find the required inputs for global and Ghanaian companies:

CAPM Parameters
- Risk-Free Rate: Use the yield on 10-year Ghana government bonds (e.g., 25% in 2024) or U.S. Treasury bonds for global firms, available on gse.com.gh or Bloomberg.
- Beta: Find on Yahoo Finance under “Statistics” (e.g., 1.2 for Access Bank Ghana).
- Market Return: Use historical or expected returns of the Ghana Stock Exchange (e.g., 15%) or global indices, available on gse.com.gh or Yahoo Finance.
DDM Parameters
- Dividend per Share: Check company reports or Yahoo Finance “Dividends” tab (e.g., 0.12 GHS for Access Bank).
- Stock Price: Find current market price on gse.com.gh or Yahoo Finance (e.g., 2.83 GHS).
- Dividend Growth Rate: Estimate from historical dividend growth or analyst projections (e.g., 5%), available on Yahoo Finance “Analysis” tab.
Weighting Parameters
- CAPM and DDM Weights: Assign based on preference (e.g., 60% CAPM, 40% DDM). Ensure they sum to 100%.
Tips
- Verify data from multiple sources (e.g., Yahoo Finance, gse.com.gh, annualreportsghana.com).
- For Ghanaian companies, check gse.com.gh for financial statements and announcements.
- Use analyst estimates for projections when historical data is limited.

Examples:

Access Bank Ghana (ABG): Risk-Free Rate = 25%, Beta = 1.2, Market Return = 15% (CAPM); Dividend = 0.12 GHS, Stock Price = 2.83 GHS, Growth Rate = 5% (DDM).
JPMorgan Chase (JPM): Risk-Free Rate = 3%, Beta = 1.1, Market Return = 10% (CAPM); Dividend = $4.10, Stock Price = $150, Growth Rate = 4% (DDM).