A friend has started a business selling software. The software is a great success, and the firm

Question:

A friend has started a business selling software. The software is a great success, and the firm quickly grows large enough to sell stock. Your friend’s firm promises to pay a dividend of $5 per share every year for the next 50 years, at which point your friend intends to shut down the business. The firm’s stock is currently selling for $75 per share. If you believe that the company really will pay dividends as stated and if you require a 10% rate of return to make this investment, should you buy the stock? Briefly explain.

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...