10.11 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? Answer: 18.2%