Does it ever make sense to purchase a stock that has never paid a dividend? Explain.

Yes. If a firm does not pay out its profits as dividends, it retains those earnings to invest in the firm. If its investments are good, they will increase the firm's future profits. The prospect of greater future profits raises the value of the stock. A good investment is simply one that increases the stock value by more than the amount of the forgone dividend. In general, stockholders are happy either with profits now or with a rising stock price.