The cost of equity is a return percentage a company must offer investors to spark investment in the company. This is an important measure, because an investor will only invest if he believes he will receive his desired rate of return.// WACC calculates the average cost the company needs to pay to raise capital through equity and debt.//
1. Find the current market value per share of stock. This is the amount the stock is currently being bought for on the open market./
2. Divide the projected dividends for next year by the current market price per share. In the above example, $1.50 divided by $20 equals 0.075, or 7.5 percent./
3. Add the dividend growth rate to the number calculated in Step 2 to calculate cost of equity. In the above example, 4 percent plus 7.5 percent equals 11.5 percent.
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