Calculate Tobin's Q for a Firm

question 96

Multiple Choice

Calculate Tobin's q for a firm. You have the following information: MPK = 2 percent, R = 3 percent, the stock market value is $1,368, the capital stock is 15 units, and the price of stock is $100. Based on this information, Tobin's q is ________. Given your answer, the market believes the firm should ________.

• A) 1.5; invest in capital
• B) 0.7; invest in capital
• C) 1.1; disinvest in capital
• D) 0.9; disinvest in capital
• E) 0.8; hold capital constant

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Definitions:

Common Shareholders

Individuals or entities that own common stock in a corporation, thus holding a share of the ownership and typically having voting rights.

Public Company

A company whose shares are traded freely on a stock exchange, subject to regulatory and reporting requirements.

Stock Split

A corporate action where a company divides its existing shares into multiple shares to boost the liquidity of the shares, though the overall value of the shares remains the same.

Shares Outstanding

The total number of shares of a corporation that have been issued and are held by shareholders.