Bryan Yee RI sum doubt

[damn_it]

I am confused with this question because of the way it’s written. With this vignette, we had to calculate intrinsic value via DDM and then the question proceeds us to find V0 via the RI model. They ask us to refer to 3 exhibits to find the answer.

Chen next instructs Yee to minimize the uncertainty in making assumptions about eLeisure’s future earnings and long-term dividend growth by using the residual income model. Yee uses the data in Exhibits 1, 2, and 3 to calculate eLeisure’s intrinsic value per common share.

For DDM I calculated the entire 3-stage model, but here the solution is

How would I understand on the test if I am supposed to ignore all the 3 growth rates and jump onto the terminal formula because I calculate RI till T8 and brought it all back to T0? Is it because Chen passed a statement stating that " Yee to minimize the uncertainty in making assumptions about eLeisure’s future earnings and long-term dividend growth by using the residual income model" so it’s implied that I disregard all 3 growth rates?

Thanks in advance

[AKRapoza]

Chen next instructs Yee to minimize the uncertainty in making assumptions about eLeisure’s future earnings and long-term dividend growth by using the residual income model. Yee uses the data in Exhibits 1, 2, and 3 to calculate eLeisure’s intrinsic value per common share.

Basically they’re telling you that originally, they used the DDM model, but the characters in the vignette instead want to use the RI model because they don’t want to make too many assumptions about future earnings.

So you would just use the residual income model from there, using the long-term ROE and the long-term growth rate that’s given to you in exhibit 3.