To answer this question, we need to establish the residual values using the following equations:

Earnings = prior year book value × ROE
Equity charge = prior year book value × required ROE
Residual income = earnings − equity charge

Here is a table containing the relevant values.

Company value = $12.40 + the sum of the residual incomes

Assuming residual value drops to zero after year five, the company is valued at $15.46 per share.

Now, we modify the model to reflect the persistence factor of 35%. The only value that persistence factor effects is the terminal value. Instead of discounting the Year 5 residual income by 1 + required ROE, we discount it by 1 + required ROE − persistence factor. The new values are as follows:

Year 4 CF = Residual income in year 4 + PV Continuing residual income = 0.89 + 1.37 = 2.26

PV of continuing residual income (T=4) = RI(year 5)/1+r-w = 1.01/(1+0.087-0.35) = 1.37

For a total value of $15.78 per share, or $0.32 higher than the original value.