• The cost of equity is the income that a company requires for an investment or project, or the income that an individual requires for an equity investment.

  • The formula used to calculate the cost of equity is either a dividend capitalization model or a CAPM model.
  • The disadvantage of the dividend capitalization model, despite its simplicity and ease of calculation, is that it requires the company to pay dividends.
  • The cost of capital, usually calculated using the weighted average cost of capital, includes both the cost of equity and the cost of debt.