Cost of equity capital

The required rate of return on investment of the common shareholders of the company. It is the required return on the company's common stock in capital markets. It is also called the equity holders' required rate of return because it is what equity holders can expect to obtain in the capital market. It is a cost from the firm's perspective. It is the minimum rate of return necessary to induce investors to buy or hold a firm’s stock. It equals a basic yield covering the time value of money plus a premium for risk.