Cost Of Common Equity Calculator

Expected Annual Dividends per Share ($):

Current Market Price per Share ($):

Growth Rate of Dividends (decimal):

 

Introduction

Calculating the Cost of Common Equity is essential for investors and financial analysts. In this tutorial, we’ll guide you through creating an HTML-based calculator for this purpose. We’ll cover how to use it, the formula involved, provide an example, and address frequently asked questions.

How to Use

To use the Cost of Common Equity Calculator, follow these steps:

1. Input Data:
   • Enter the Expected Annual Dividends per Share ($).
   • Insert the Current Market Price per Share ($).
   • Input the Cost of Common Equity as a percentage (%).
   • Provide the Growth Rate of Dividends in decimal form.
2. Click Calculate:
   • After entering the required data, click the “Calculate” button to compute the Cost of Common Equity.
3. View Results:
   • The calculated Cost of Common Equity will be displayed on the screen.

Formula

The formula for calculating the Cost of Common Equity (Ke) is as follows:

Ke = (D1 / P0) + g

Where:

• Ke = Cost of Common Equity
• D1 = Expected Annual Dividends per Share ($)
• P0 = Current Market Price per Share ($)
• g = Growth Rate of Dividends (decimal)

Example

Let’s illustrate how to use the Cost of Common Equity Calculator with an example:

• D1 = $2.50
• P0 = $50.00
• Cost of Common Equity = 8%
• Growth Rate (g) = 0.05 (5%)

Ke = (2.50 / 50.00) + 0.05 = 0.10 or 10%

In this example, the Cost of Common Equity is calculated to be 10%.

FAQs

Q1: Why is Cost of Common Equity important?

The Cost of Common Equity is crucial for evaluating the attractiveness of an investment. It helps in determining the required return for equity investors.

Q2: What if I don’t know the Growth Rate (g)?

If you don’t have the Growth Rate, you can estimate it based on historical data or industry benchmarks.

Q3: Can I customize the HTML code for the calculator?

Absolutely. You can modify the HTML and CSS styles to match your website’s design preferences.

Q4: Is this calculator suitable for all industries?

Yes, the Cost of Common Equity Calculator can be used across various industries to evaluate equity investments.

Conclusion

Creating an HTML-based Cost of Common Equity Calculator with a user-friendly form and clickable button simplifies financial analysis. By following the provided formula, example, and guidelines, you can efficiently determine the Cost of Common Equity for your investments. Make sure to customize the code to fit your specific needs and design preferences.