Gordon Growth model

The Gordon Growth model is a formula for valuing something that is expected to generate cash forever, growing at a constant rate. It was originally built to value a stock based on its dividends, but the same formula is commonly borrowed inside a discounted cash flow model to calculate terminal value, the lump sum representing everything beyond the explicit forecast years.

The formula is: Final year cash flow x (1 + long-term growth rate) / (discount rate - long-term growth rate). The long-term growth rate has to stay below the discount rate, or the formula produces a nonsense result, dividing by zero or by a negative number.