Calculation formula of capital cost

The calculation formula of equity capital cost is: equity capital cost = risk-free interest rate+risk premium, rs=rRF+β×(rm-rRF).

Rs=rRF+β×(rm-rRF), where rRF is the risk-free interest rate, β is the β coefficient of the stock, rm is the average yield of the risky stock, (rm-rRF) is the market risk premium, and β×(rm-rRF) is the risk premium of the stock. Market risk premium =rm-rRF is usually defined as a long historical period.

The cost of equity capital is the required rate of return on investment calculated according to the theory of finance, and the cost of equity capital is the required rate of return when investors invest in the equity of enterprises. The most commonly used models are dividend growth model, capital asset pricing model and arbitrage pricing model. It is the required return on investment calculated according to financial theory.