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:2) Consider a company whose stock pays no dividends, and whose management's states that their intention is not to pay them in the future. The present value of a future stream of zero dividends is zero. How does economic theory explain why people are willing to buy such stock? [[User:Dpbsmith|Dpbsmith]] 16:39, 8 February 2007 (EST)
:2) Consider a company whose stock pays no dividends, and whose management's states that their intention is not to pay them in the future. The present value of a future stream of zero dividends is zero. How does economic theory explain why people are willing to buy such stock? [[User:Dpbsmith|Dpbsmith]] 16:39, 8 February 2007 (EST)
There are two scenario's that come to mind. The straightforward explanation is that the firm is a charitable organization, and the investors by stock in view of the beneficial effect the firm has on thier community. The second explanation is that the economic activity of the aforementioned firm is beneficial to the investor. For example, small business owners in a certain town might be willing to invest in a ski-mountain, golf resort, amusement park etc. moving in thier town even if it were not directly profitable, if it would attract tourists and increase the demand for thier own goods and services.
-Chris J