Let's look at a very simple example: let's say you require a rate of return of 10% on an investment in TSJ Sports. The stock is currently trading at $10 and will pay a dividend of $0.30. Through a combination of dividends and share appreciation you require a $1.00 return on your $10.00 investment. Therefore the stock will have to appreciate by $0.70, which, combined with the $0.30 from dividends, gives you your 10% cost of equity.

If a financial manager states that his firm uses the equity cost of capital, or the return on the funds the firm invests, to determine the rate that a project must achieve, and that the company has a predetermined rate for each market, adjusted for the type of project and other factors. What kinds of adjustments do you think the financial analyst's firm makes and what does he mean by the equity cost of capital?