Cost of Equity

The return equity investors require for holding the shares rather than a risk-free asset. Usually built with CAPM: risk-free rate plus levered beta times the equity risk premium, with a country risk premium, size premium or company-specific premium added where the context demands. Always higher than the cost of debt, because equity sits last in the queue.

Practise it

Build a discount rate from its parts. Adjusted beta through unlever and relever, live equity risk premiums, three routes to a cost of debt.

Open WACC Builder, free, 12 min

Where Cost of Equity comes up

How to Build a DCF Model: Build Order, Terminal Value and the Sanity ChecksA DCF is 70% terminal value and 100% assumptions. Build it so both can be defended.Read the guide — 12 min DCF Interview Questions: The Ones That Actually Come UpFrom "walk me through a DCF" to the follow-ups that catch people who only memorised the steps.Read the guide — 8 min Top Investment Banking Technical Questions (With Answer Frameworks)The questions that actually get asked, the frameworks to answer them, and the traps inside each one.Read the guide — 10 min

Keep reading

DCF interview questions guide

Related Valuation terms

WACC Cost of Debt Equity Risk Premium Country Risk Premium Size Premium Adjusted Beta

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