Cost of Equity Calculator
Results are estimates based on the values you enter. Recheck your inputs and assumptions before using the output for decisions.
Estimate cost of equity from equity capital, beta, market return, and risk-free rate.
Cost of Equity Calculator
Free online cost of equity calculator to estimate the return equity investors require for taking the risk of investing in a business or stock. This calculator is useful for investors, finance students, analysts, CFO teams, founders, valuation specialists, and anyone working on project analysis or company valuation. Cost of equity matters because it represents the return shareholders expect as compensation for risk. It is often used in valuation work, discount rate selection, performance benchmarking, and capital budgeting. Instead of guessing an equity return requirement, this calculator applies a CAPM-based approach that ties the answer to beta, market return, and the risk-free rate.
This calculator uses four main inputs. Equity capital means the amount of equity funding you want to apply the percentage result to for a money-based annual cost output. Beta means the sensitivity of the company or stock to market movements. Market return means the expected return of the overall market or a chosen benchmark. Risk-free rate means the low-risk baseline return available over the same period. Once those values are entered, the calculator shows cost of equity, market risk premium, beta-adjusted risk premium, and annual equity cost. These outputs help you see both the percentage return required by shareholders and the annual dollar cost implied by that required return on the equity capital amount.
The formula of cost of equity
Market risk premium = Market return – Risk-free rate
Beta-adjusted risk premium = Beta x Market risk premium
Cost of equity = Risk-free rate + Beta-adjusted risk premium
Annual equity cost = Equity capital x Cost of equity
Here equity capital means the amount financed by shareholders, beta means the market sensitivity of the stock or business, market return means the expected return of the benchmark market, risk-free rate means the baseline return from a near risk-free investment, market risk premium means the extra return demanded for market risk, beta-adjusted risk premium means the market premium scaled by the equity beta, and cost of equity means the total annual return equity holders require.
Solved Example
Example 1: Find the cost of equity if equity capital is $750,000, beta is 1.20, market return is 10%, and risk-free rate is 3%.
Solve: Market risk premium = 10.00% – 3.00% = 7.00%
Beta-adjusted risk premium = 1.20 x 7.00% = 8.40%
Cost of equity = 3.00% + 8.40% = 11.40%
Annual equity cost = 750000 x 11.40% = $85,500.00
Example 2: Find the result if equity capital is $500,000, beta is 0.90, market return is 9%, and risk-free rate is 4%.
Solve: Market risk premium = 5.00%
Beta-adjusted risk premium = 4.50%
Cost of equity = 8.50%
Annual equity cost = $42,500.00
Example 3: Find the result if equity capital is $1,200,000, beta is 1.40, market return is 12%, and risk-free rate is 2.5%.
Solve: Market risk premium = 9.50%
Beta-adjusted risk premium = 13.30%
Cost of equity = 15.80%
Annual equity cost = 1200000 x 15.80% = $189,600.00
Table of cost of equity calculator
| Beta | Market Return | Risk-free Rate | Cost of Equity |
|---|---|---|---|
| 0.90 | 9.00% | 4.00% | 8.50% |
| 1.00 | 10.00% | 3.00% | 10.00% |
| 1.20 | 10.00% | 3.00% | 11.40% |
| 1.40 | 12.00% | 2.50% | 15.80% |
How to use this cost of equity calculator
Enter the equity capital in the proper input field. After that, enter beta, market return, and risk-free rate using values from the same time basis. Then click the calculate button. The calculator will show cost of equity, market risk premium, beta-adjusted risk premium, and annual equity cost in the result box.
This calculator is especially useful when building a discount rate for equity valuation, comparing return expectations across businesses, or estimating the shareholder return requirement for planning and financial modeling. A higher beta raises the beta-adjusted risk premium and therefore increases the cost of equity. A lower beta produces a lower required equity return. This relationship helps translate market risk into a practical return hurdle for decision-making.
When using the result, remember that cost of equity is model-based and depends on the beta estimate, the market return assumption, and the risk-free rate chosen. Different benchmarks or time periods can change the result. The true return shareholders expect can also be influenced by company-specific risks beyond market beta alone. Even so, a CAPM-based cost of equity remains one of the clearest and most commonly used starting points in finance. This calculator gives a fast way to estimate that required return in both percentage and dollar terms.