Cost of Equity

Only the first formula is correct (and is given on the formula sheet).

The second formula does not exist as you have typed it!!!

I think what you maybe meant to write is: R (or Ke) = ((D(1+g)/P) + g

This is exactly the same as the first formula, only rearranged.

If you are asked to calculate the market value then you use the first formula (the one of the formula sheet).
If you are given the market value and are asked to calculate the cost of equity, then you either use the first formula and then rearrange the figures, or (if your maths is not so good) then learn the rearranged formula and use that.

In the free lectures on cost of equity I explain the above, with examples.

The growth we are talking about is the expected dividend growth each year. If the growth rate is (say) 4% it means investors are expected the dividends to grow by 4% per year.

The growth rate does not directly effect the cost of equity because the cost of equity is determined by the investors required rate of return which in turn is determined by other factors (the returns on other investments together with the level of risk).

However, given that we use the expected future dividends and current market value (which is fixed by investors) to calculate the cost of equity, then using the formula it does mean that higher expected dividend growth rates do result in a higher figure for the cost of equity.

You really need to watch the free lectures on the valuation of securities and on the cost of equity, to understand in detail.

You are welcome 🙂