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6. Baxter Company just paid a dividend of $2.00 per share and is expected to pay a dividend one year from today of $2.14 per

6. Baxter Company just paid a dividend of $2.00 per share and is expected to pay a dividend one year from today of $2.14 per share. The future growth rate in dividends is expected to remain equal to the growth rate in Year 1 forever. Baxter stock has a required rate of return of 26 percent. Baxter's dividend payout ratio is 40 percent and the company's debt ratio is 62 percent. Given the information above, compute the current market price of Baxter Company stock.

$ 7.69

$ 8.23

$ 4.51

$11.26

$17.83

If two firms have the same current dividend and the same expected growth rate, their stocks must sell at the same current price or else the market will not be in equilibrium.

True

False

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