1. Dividends are said to be the basis for the value of stocks. If that’s true, how do we explain the fact that companies that pay no dividends often have substantial market value? (Such companies are usually relatively young and in high-growth fields.) First explain the phenomenon in terms of the individual valuation model

(a stream of dividends followed by a selling price, equation 15.1). Then reconcile the idea with the whole market model (an infinite stream of dividends). Can you explain cases in which managements claim their companies will never pay dividends?

(Hint: Does such a claim make sense?)