W98NOONMT.7
7. Microsoft has never paid a dividend--how can its stock be worth anything? (7 pts.)
Investors are willing to let MSFT keep investing its profits instead of distributing them to shareholders. Investors obviously believe, given the high valuation of MSFT, that it will be able to make abnormal returns on these investments. That is, the value of MSFT comes from future income rather than current income.