Cost of equity

The return shareholders require for owning the shares, given the risk they are taking.

Under the capital asset pricing model it is the risk-free rate plus beta times the equity risk premium. At 7%, a beta of 1.1 and a 5.5% premium, the answer is 13.05%.

Nobody can observe this number, which is worth saying plainly. It is inferred from a model whose central assumption, that a single measure of covariance captures risk, is contested and has been for fifty years. Practitioners use it because the alternatives are worse and because the discipline of stating a required return is more valuable than the precision of any particular estimate.

Build it, then sanity-check it against what a lender charges the same company. Equity should cost meaningfully more than debt.