security valuation / discounting rate question

[Loco303]

Hi
Could anyone explain to me why we do additionally discount with (ke-g) (11%-5.14%) in the last period in the 2nd question instead of just discount with 11%^2. I hope it’s somewhat clear what I mean
many thanks in advance

 

[JSD - NYC]

The 11-5.14 is used to reflect the value of the cash flows going forward which are going to be subject to constant growth rate of 5.14 (using Gordon Growth). That is discounting all the future returns (which are going to be constantly growing at a consistent rate) to Year 2.
However, you also need to get from Year 2 to Year 0. Because the constant growth does not start until 3 years out, you have to discount it back two years (that’s where the 1.11^2 comes in).