I don't understand the concept of cost of equity

I understand cost of debt, it's pretty straight forward, its just the interest rate on debt

However, I am confused about cost of equity and the actual cost of issuing equity. For example, if a company decides to issue 1 share at $100 and the cost of equity is 8%, how is the company losing 8 dollars from this? The only negative cash outflow I can see from this issuance is investment banking fees. Assuming the company DOES NOT issue dividends, and investors only benefit from stock appreciation, how does this cost the company? If the stock price appreciates from 100 to 120, this has no bearing on the company in terms of cash.

5 Comments
 

okay, but when we are having a discussion about which is cheaper for a company to issue, debt vs equity, I don't really understand why equity costs more assuming the company doesn't issue dividends.

 

A company can compensate its shareholders without paying dividends. They can repurchase shares, acquire new assets to grow, or other forms of investment.

 
Best Response

Facere et magnam quas et nesciunt dolores. Vitae et ullam doloremque fugit omnis est reiciendis labore. Quaerat explicabo quaerat vel quidem optio. Laborum qui et est adipisci. Eaque perferendis omnis sunt eius pariatur alias aut. Sit provident sint quasi tempora nesciunt molestiae.

Aliquid dolorem incidunt magni ut enim quo voluptatibus. Illum qui amet vel consequatur placeat dolores. Et tenetur deleniti ad. Quam voluptate quod doloremque sint eligendi voluptatum omnis. Nihil similique doloribus tempora eum aut dolorem delectus.

Quia nam et facere sed facere. Voluptas totam sit fuga.

Recusandae in sapiente ipsa placeat. Et earum esse quis et in.

Career Advancement Opportunities

July 2026 Investment Banking

  • Evercore 01 99.4%
  • Moelis & Company 01 98.9%
  • JPMorgan 01 98.3%
  • Guggenheim Partners 01 97.7%
  • Morgan Stanley 07 97.1%

Overall Employee Satisfaction

July 2026 Investment Banking

  • Moelis & Company No 99.4%
  • Morgan Stanley 02 98.9%
  • Evercore 01 98.3%
  • BMO Capital Markets 12 97.7%
  • Banco Santander 01 97.1%

Professional Growth Opportunities

July 2026 Investment Banking

  • Evercore 01 99.4%
  • Moelis & Company 01 98.9%
  • Morgan Stanley 06 98.3%
  • Goldman Sachs 01 97.7%
  • JPMorgan 01 97.1%

Total Avg Compensation

July 2026 Investment Banking

  • Vice President (15) $434
  • Associates (46) $258
  • 3rd+ Year Analyst (8) $210
  • 2nd Year Analyst (22) $179
  • Intern/Summer Associate (13) $156
  • 1st Year Analyst (79) $150
  • Intern/Summer Analyst (73) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
kanon's picture
kanon
99.0
3
Secyh62's picture
Secyh62
99.0
4
BankonBanking's picture
BankonBanking
99.0
5
dosk17's picture
dosk17
98.9
6
Betsy Massar's picture
Betsy Massar
98.9
7
CompBanker's picture
CompBanker
98.9
8
GameTheory's picture
GameTheory
98.9
9
DrApeman's picture
DrApeman
98.9
10
bolo up's picture
bolo up
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”