Residual income deducts required rate of return on equity; then
If further discounts the stream of residual income to get the valuation of a asset/security by the required rate of return on equity;
Isn’t it being reduced/discounted twice by the same factor?
No you are looking it incorrectly. Once you have calculated residual income you are discounting this figure back year by year (including any terminal value in a two stage model). Don’t get confused with single stage RI models (which has the assumption of continuous growth)
Look at it this way when you look at a P&L statement a charge for debt (interest expense) is taken from the EBIT figure to get your net income. However there is no equity charge taken away from EBIT in accounting statements.
Residual income models introduce an ‘equity charge’:
RI = EPS (a.k.a Net income) - Equity charge (r x BV t-1)
The formula you provided is incorrect. It should be (ROE - g) x Book value T-1.
You will notice with RI questions that any earnings which aren’t paid out as dividends are added to the ending book value which is used to calculate the RI for the next period.
RI is the excess return. It is net of equity charge. Discounting is done to generate PV in order to have a value based on going concern. We aren’t doing it double as in first case it is the excess return net of equity charge and in order to calculate PV we have to discount the stream of RI. These are two separate things. If you notice other valuation methods (DDM and FCFE) also dicsount using appropriate discount rate. They are calculated and then discounted. Deducing equity charge out is part of calculating RI and then it is discounted like other valuation techniques.