Can anyone give me an efficient step-by-step procedure of calculating the answer that incorporates my BAII Plus calculator?
The residual income is a recursive plug 'n chug. The only thing I can see is the CF worksheet since the amounts are non-level, but evenly spaced. You may even be able to approximate the yr 5 CF as a perpetuity by setting F0x as some really high number.
My BAII is at home and I am at a conference now, but I’ll try to get you a more detailed answer in the next day or so.
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Great! The reasoning behind the calculations are starting to come to me. For example, the "Cashflows
are actually annual residual income etc.
There’s no simple way to do this problem, but I found a way to shoehorn it into the BAII:
Roll up the starting BV of $12.40 by 13.6% each year and store each year’s value in a memory register, i.e. 12.4 * 1.136 = 14.0864 STO 1, etc. The residual income is (13.6% * opening BV - 8.7% *opening BV) = 4.9% *opening BV 
. So the residual income in year t is 4.9% * opening BV. The RI for year 1 is 4.9% * RCL 1 = 4.9% * 12.4 = 0.6076. Repeat for each year and set the following values in the CF worksheet:
CF0 12.40 C01 0.61 F01 1 … C03 0.89 F03 1. For C04, you have to add the adjusted year 5 RI (with the 1 year discount for interest and persistency) to the year 4 RI. Use the NPV function at I=8.7% to get the new share price.
It ain’t pretty, but it should work. 
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That is precisely what I was looking for. I will dig into this tomorrow first thing. A huge thank you!
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For the persistency part, does the reading tell you to take CF/(1 +WACC - persistency)??
This is fantastic. I will answer your question below shortly. Would we consider ROE - r = alpha since ROE was greater than the cost of equity? I’m thinking about my notes and writing the formula in shorthand.
Assumption 1 is a level perpetuity, assumption 2 is a single RI at time t. Would you please show me what the equation is for assumption 3? That’s the situation we have here.
When the Residual Income declines over time, do we use the Multistage RI valuation formula?
How do you calculate the adjusted year 5 RI? This last part is stumping me.
I can get it, now I’m catching on.
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It is a shame that the curriculum doesn’t mesh the use of the calculator with the subject being taught. Entering the RIs into the CF function and finding the NPV only reinforces the understanding of the content; My neurological pathways increase in breadth, depth, and strength by doing so.
