What is Cost of Equity?

A definition of Cost of Equity

“Cost of equity refers to the return a company requires to decide if an investment meets capital return requirements. It is the compensation the market demands for taking on the risk of investing in equity.”

Cost of Equity in Business Glossary - What is a Cost of Equity?

Business Glossary > What is Cost of Equity?


Examples of Cost of Equity in a Sentence:

Investors use the cost of equity to evaluate potential returns on stocks.

A higher cost of equity indicates more risk and expected return.

The cost of equity affects a company’s decisions on financing projects.

Why is Cost of Equity Important in Business?

The cost of equity is crucial for businesses in determining the viability of projects and for investors to assess potential returns and risks in equity investments. It guides companies in capital budgeting decisions and performance assessments.

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Associated Terms

Here are some associated business terms and synonyms for “Cost of Equity”:

  • Equity Cost
  • Equity Yield
  • Shareholder Required Rate of Return

Apple Inc. Cost of Equity

Apple Inc. utilizes its cost of equity to evaluate whether new product developments or acquisitions will generate sufficient returns to satisfy shareholder expectations, ensuring that their projects align with financial goals.

Final Notes on Cost of Equity

Companies should ensure they accurately calculate their cost of equity to make informed strategic decisions, balancing growth initiatives with shareholder return expectations. Accurate assessments prevent undervaluing or overextending financial resources.


This has been a definition of Cost of Equity meaning.

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