This exercise is only done by groups of 2, or more, students. Damiano Maggi is valuing Yummy Doughnuts (YD), a company that sells a variety of doughnuts through both company- owned locations and franchise locations. Damiano has made the following assumptions: Book value per share is estimated at $9.62 on 31 December 2022. EPS will be 22 percent of the beginning book value per share for the next three years. Cash dividends paid will be 30 percent of EPS. The beta for YD is 0.60, the risk-free rate is 5.00 percent, and the equity risk premium is 5.50 percent. The current market price of YD is $59.38, which indicates a current P/B ratio of 6.2. Based on this information answer the questions below.

1. [5 points] For this question only, suppose that after year 3 the residual income starts to fade with a persistence factor of 0.5. Write down the appropriate model to use for calculation of the stock value using the multistage residual income model. What is the intrinsic value of the stock using this model?