Cost of Equity Models-A Review

This paper elaborates the approaches to measure cost of equity, namely the implied cost of capital approach and realised returns approach. In the implied cost models, present value of future cash flows and current share price is used for determining cost of capital, whereas actually earned returns are used in realised returns approach. The paper contributes by applying these models in Indian context and finding the relevance of the same. By determining the cost of equity capital of Infosys Ltd., an Indian IT company, using various models discussed, this study concludes that choice of use of model depends on the conditions of the market in which the company operates, the analyst following such companies and their validity.