Finance / July 19, 2018 / Alicia Franklin
Cost of Equity is the rate of return a shareholder requires for investing equity into a business. The rate of return an investor requires is based on the level of risk associated with the investment, which is measured as the historical volatility of returns. A firm uses cost of equity to assess the relative attractiveness of investments, including both internal projects and external acquisition opportunities. Companies typically use a combination of equity and debt financing, with equity capital being more expensive.
A common stock is a representation of partial ownership in a company, and is the type of stock most people invest in. Common stock comes with voting rights, as well as the possibility of dividends and capital appreciation. In accounting, you can find information about a company's common stock in its balance sheet.
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