Cost of Retained Earnings Calculator

✖Dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.ⓘ Dividend [D]			+10% -10%
✖Current Stock Price is the present purchase price of security.ⓘ Current Stock Price [P_c]			+10% -10%
✖Growth Rates refer to the percentage change of a specific variable within a specific time period, given a certain context.ⓘ Growth Rate [g]			+10% -10%

✖Cost of Retained Earnings represents the return that shareholders could have earned if the company had distributed the earnings as dividends instead of retaining them.ⓘ Cost of Retained Earnings [C_RE]

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Formula

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Cost of Retained Earnings

Formula

`"C"_{"RE"} = ("D"/"P"_{"c"})+"g"`

Example

`"0.7"=("25"/"50")+"0.20"`

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Cost of Retained Earnings Solution

STEP 0: Pre-Calculation Summary

Formula Used

Cost of Retained Earnings = (Dividend/Current Stock Price)+Growth Rate
C_RE = (D/P_c)+g
This formula uses 4 Variables

Variables Used

Cost of Retained Earnings - Cost of Retained Earnings represents the return that shareholders could have earned if the company had distributed the earnings as dividends instead of retaining them.
Dividend - Dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
Current Stock Price - Current Stock Price is the present purchase price of security.
Growth Rate - Growth Rates refer to the percentage change of a specific variable within a specific time period, given a certain context.

STEP 1: Convert Input(s) to Base Unit

Dividend: 25 --> No Conversion Required
Current Stock Price: 50 --> No Conversion Required
Growth Rate: 0.2 --> No Conversion Required

STEP 2: Evaluate Formula

Substituting Input Values in Formula

C_RE = (D/P_c)+g --> (25/50)+0.2

Evaluating ... ...

C_RE = 0.7

STEP 3: Convert Result to Output's Unit

0.7 --> No Conversion Required

FINAL ANSWER

0.7 <-- Cost of Retained Earnings

(Calculation completed in 00.004 seconds)

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Created by Vishnu K

BMS College of Engineering (BMSCE), Bangalore

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Verified by Kashish Arora

Satyawati College (DU), New Delhi

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< 18 Capital Budgeting Calculators

Overall Cost of Capital

Go Overall Cost of Capital = (Market Value of the Firm’s Equity)/(Market Value of the Firm’s Equity+Market Value of the Firm’s Debt)*Required Rate of Return+(Market Value of the Firm’s Debt)/(Market Value of the Firm’s Equity+Market Value of the Firm’s Debt)*Cost of Debt*(1-Tax Rate)

Discounted Payback Period

Go Discounted Payback Period = ln(1/(1-((Initial Investment*Discount Rate)/Periodic Cash Flow)))/ln(1+Discount Rate)

Net Present Value (NPV) for even cash flow

Go Net Present Value (NPV) = Expected Cash Flow*((1-(1+Rate of Return)^-Number of Periods)/Rate of Return)-Initial Investment

Capital Asset Pricing Model

Go Expected Return on Investment = Risk Free Rate+Beta on Investment*(Expected Return on Market Portfolio-Risk Free Rate)

Double Declining Balance Method

Go Depreciation Expense = (((Purchase Cost-Salvage Value)/Useful Life Assumption)*2)*Beginning PP&E Book Value

Modified Internal Rate of Return

Go Modified Internal Rate of Return = 3*((Present Value/Cash Outlay)^(1/Number of Years)*(1+Interest)-1)

Cost of Retained Earnings

Go Cost of Retained Earnings = (Dividend/Current Stock Price)+Growth Rate

After-Tax Cost of Debt

Go After Tax Cost of Debt = (Risk Free Rate+Credit Spread)*(1-Tax Rate)

Beginning Inventory

Go Beginning Inventory = Cost of Goods Sold-Purchases+Ending Inventory

Terminal Value using Perpetuity Method

Go Terminal Value = Free Cash Flow/(Discount Rate-Growth Rate)

Trade Discount

Go Trade Discount = multi(List Price,Trade Discount Rate)

Expected Monetary Value

Go Expected Monetary Value = multi(Probability,Impact)

Accounting Rate of Return

Go Accounting Rate of Return = (Average Annual Profit/Initial Investment)*100

Inventory Carrying Cost

Go Inventory Carrying Cost = (Total Carrying Cost/Total Inventory Value)*100

Certainty Equivalent Cashflow

Go Certainty Equivalent Cashflow = Expected Cash Flow/(1+Risk Premium)

Payback Period

Go Payback Period = Initial Investment/Cashflow per Period

Terminal Value using Exit Multiple Method

Go Terminal Value = EBITDA at Last Period*Exit Multiple

Cost of Debt

Go Cost of Debt = Interest Expense*(1-Tax Rate)

Cost of Retained Earnings Formula

Cost of Retained Earnings = (Dividend/Current Stock Price)+Growth Rate
C_RE = (D/P_c)+g

What is Cost of Retained Earnings?

The cost of retained earnings, also known as the opportunity cost of retained earnings, represents the return that shareholders could have earned if the company had distributed the earnings as dividends instead of retaining them. It is a crucial concept in financial management because retained earnings are funds that could have been distributed to shareholders but are instead reinvested in the company for growth or other purposes.

Calculating the cost of retained earnings can be complex and depends on various factors such as the company's cost of equity, the rate of return expected by shareholders, and the alternative investment opportunities available to them. One common approach to estimating the cost of retained earnings is to use the capital asset pricing model (CAPM) or other models used to calculate the cost of equity.

How to Calculate Cost of Retained Earnings?

Cost of Retained Earnings calculator uses Cost of Retained Earnings = (Dividend/Current Stock Price)+Growth Rate to calculate the Cost of Retained Earnings, The Cost of Retained Earnings formula is defined as an opportunity cost, representing the return shareholders could have earned if they had received the retained earnings as dividends and invested them elsewhere. Cost of Retained Earnings is denoted by C_RE symbol.

How to calculate Cost of Retained Earnings using this online calculator? To use this online calculator for Cost of Retained Earnings, enter Dividend (D), Current Stock Price (P_c) & Growth Rate (g) and hit the calculate button. Here is how the Cost of Retained Earnings calculation can be explained with given input values -> 0.698008 = (25/50)+0.2.

FAQ

What is Cost of Retained Earnings?

The Cost of Retained Earnings formula is defined as an opportunity cost, representing the return shareholders could have earned if they had received the retained earnings as dividends and invested them elsewhere and is represented as C_RE = (D/P_c)+g or Cost of Retained Earnings = (Dividend/Current Stock Price)+Growth Rate. Dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders, Current Stock Price is the present purchase price of security & Growth Rates refer to the percentage change of a specific variable within a specific time period, given a certain context.

How to calculate Cost of Retained Earnings?

The Cost of Retained Earnings formula is defined as an opportunity cost, representing the return shareholders could have earned if they had received the retained earnings as dividends and invested them elsewhere is calculated using Cost of Retained Earnings = (Dividend/Current Stock Price)+Growth Rate. To calculate Cost of Retained Earnings, you need Dividend (D), Current Stock Price (P_c) & Growth Rate (g). With our tool, you need to enter the respective value for Dividend, Current Stock Price & Growth Rate and hit the calculate button. You can also select the units (if any) for Input(s) and the Output as well.

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