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Suppose the stock price for a firm in Manitoba is $10 per share.The firm has 5 machines and 1,000 shares outstanding.Suppose the price of a new machine is $1,500.
a.What is Tobin's q for this firm?
b.Should this firm make new investment (buy new machine)? Why?
c.Assume the firm's stock price falls down to $6 per share.Should the firm buy new machine?
d.Assume the price of a new machine rises to $1,800.Using the original information for the other variables,should the firm make new investment?
Consumption
The use of goods and services by households or individuals, typically relating to spending on products and services.
Permanent Income Hypothesis
A theory suggesting that a person's consumption at a point in time is determined not just by their current income but by their longer-term income expectations.
Consumer Binge
A period characterized by excessive spending and consumption by consumers.
Bank Credit Cards
Financial instruments issued by banks that allow holders to borrow funds up to a predetermined limit for purchases or cash withdrawals.
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