How do you calculate cost of equity?

I would use the capital asset pricing model. Cost of equity equals the risk-free rate plus beta times the equity risk premium. It represents the return equity investors require, given how risky the stock is relative to the market.

For the risk-free rate, I use the yield on a long-term government bond in the currency of the cash flows, typically the 10-year Treasury for a US company. Beta measures how much the stock moves relative to the market; because a single company's historical beta is noisy, bankers often unlever the betas of comparable companies, take the median and relever it at the target's capital structure. The equity risk premium is the extra return investors expect from stocks over government bonds; banks usually take it from a standard data provider or internal guidance.

As an example, with a 4% risk-free rate, a beta of 1.2 and a 5% equity risk premium, cost of equity is 4% plus 6%, or 10%. For a small or unusually risky company I might add a size premium. Cost of equity then feeds into WACC alongside the after-tax cost of debt.