The cost of equity can be calculated using two different models depending on whether the company pays dividends or not:
Using the CAPM Model:
\[ \text{Cost of Equity} = \text{Risk-free rate of return} + \beta \times (\text{Market rate of return} - \text{Risk-free rate of return}) \]
Using the Dividend Capitalization Model:
\[ \text{Cost of Equity} = \left(\frac{\text{Dividend per share}}{\text{Current share price}}\right) + \text{Growth rate of dividend} \]
For a company with a current share price of $70, a dividend of $2 per share, and a growth rate of 3%:
\[ \text{Cost of equity} = \left(\frac{2}{70}\right) + 0.03 = 0.0286 + 0.03 = 5.86\% \]
