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An analyst constructs a privately held firm's cost of equity using the "build-up" method. The 10-year Treasury bond rate is 4% and the historical equity risk premium for the S&P 500 stock index is 5.5%. The risk premium associated with firms of this size is 3.8% and for firms within this industry is 2.4%. Based on due diligence, the analyst estimates the risk premium specific to this firm to be 2.5%. What is the firm's cost of equity based on this information?
Consistency Motive
The psychological drive to maintain uniformity and coherence in one's beliefs, attitudes, and behaviors.
Affiliation Goal
A personal or social objective that involves connecting, belonging, or being accepted by others.
Target Customer
A target customer is an individual or group that a business aims to reach with its products, services, and marketing efforts, typically characterized by shared demographics, interests, or needs.
Negative Affect
A state of feeling or mood characterized by negative emotions such as sadness, anxiety, or anger.
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