about the dividends in year one two three four

until T.

Okay? So for example T is a five so you

predict what's the data. The farm's dividend
levels are quite sticky. Okay? They try to
maintain a relatively constant level of
dividend. They try not to surprise the markets.

Okay? So that's your forecasting the first of T

periods. You have precise, relatively precise
forecast of the dividends. Then what you do is
just to discount all these cash flows back to
today. with the proper discount rates and the
T adjustments.

So that's the first part. Now, the second part is

the parts that you are not so sure about. You
don't know what's gonna happen in five years.
All this technology can make things change
quickly, so I'm not sure what's gonna happen.

In that case, it's probably not realistic to try to

make this yearly forecast. So what you do is
just to simplify, you say, I just suppose after
the five years, after T years, this dividends just
grow at a constant rate.

So that's my simplest assumption. And if you

make that assumption, then your job is just to
try to discount all the future cash flows to
today. Okay? So what do you do? In the first T
periods, you have precise forecast.

And after T periods, starting from T plus 1,

you just say, I make the simplest assumption
that a dividend will grow at a constant rate. So
you know D1 into DT, that's your estimation.
And you know, starting from here, it will grow
at a constant rate.
So the T plus 1 will become DT1 plus G. And
the T plus 2 will become DT1 plus G square.
And so on and so forth into infinite. Now,
when doing the discounting, we decompose
into two parts. The first part is quite
straightforward, discounting each individual
cash flow.

Now, how do we deal with this cash flow

starting from T? Starting from T plus 1, G. So
we have a name for this kind of cash flows.
Remember what it is? What is a cash flow we
call it? It's infinite cash flow and grow at a
constant rate.

What's it called? What is a cash flow for this

type? A growing perpetuity. Growing
perpetuity, yes. So the characteristics is that
they grow at a constant rate, and they are in
finite cash flows. And there is a formula to
calculate the discounted value of such a
growing perpetuity.

And this is the formula. So if you are here,

standing at the point of T, and looking
forwards, you foresee the firm's cash flow, the
firm's dividends, will be a growing perpetuity.
And you know the formula to calculate the
present value of the growing perpetuity.

which will be the first cash flow, Bt1 plus g

divided by r minus g. This is a formula to
calculate the growing probability. Remember?
Forgot. OK. So this is not the end in that
formula. You see there's a second term.

There's a second term. It looks like a discount

rate. Why do we need to do the further
discounting? If you go to the timeline,
remember, I'm standing here and looking the
future cash flow. So once I get this number, I
know I'm calculating the value, present value,
at the point of capital T.