We used 2 methods to solve this problem in class.

I have some questions. Why do we have to discount price10 to T0? we already include price10 when we calculate from dividend 4 to dividend 10, so it means at T10, it is calculated twice???

and the second method (use calculator), why the CF10 is $1.5 + $10?

Problem 3: Pricing common stock w/multiple dividend patterns The Pastel Products Company is expanding fast and therefore will not pay any dividends for the next 3 years. After that, starting at the end of year 4, it will pay a dividend of $0.76 per share to its common shareholders and increase it by 12% each year until it pays $1.50 at the end of year 10. After that, it will pay $1.50 per year forever. If an investor wants to earn 15% per year on this investment, how much should she pay for the stock? DivGiz Di J 12 Dive = 0.35 0.85 1.06 4 Prio 076 (4) PB CHandord T.t To TA TL Ts PV Ts Te T Ts Ty To TA4 + 0. FV 0.8511 DiVS -0.76 x(1t 12 7a) Dive =0.85 12 x 1.12 aV&-0.9533xLi2 0-9538 4 A.5001 A.o672 44959 $1.56 $1.50 Divee 4.3394 *price10 $10 Cousaunt derdend) 157 Diseount prie 10hO price to- 40 (4t157.) 0.9533 1.0611 + 0-76 0.85A2 PV = + + CL.15 )4 A.1959 (A.15)5 1-3394 4.15) (4.15) 1-5004 + + A.45)0 5)0 (A.45 $5.29 CFo CEA, CF Cs 0 CF4 S0 76 -4.496 CFg :1.84, CEo 45 +10 CFS - 0.$5, CF60.95,CF-1.01, CFf= LE rehurn- 45 7