8

Ajax Limited is a company listed on the NZX. Ajax has announced it will make a dividend payment at the end of the year of $1.75 per share. The average annual growth rate in the company's dividends over the past five years has been 5%. Ajax's shareholders have a required rate of return of 15%p.a. Ajax's shares have been trading very

consistently around $20 per share for the past few months and analysts suggest this is likely to continue for the foreseeable future.

How can you explain this price based on the constant growth dividend discount model?