When Tobin's q is ________, the market is signaling that a firm should ________.
A) greater than one; invest in more capital
B) equal to zero; shut down
C) infinity; sell its stock holdings
D) less than one; raise dividend payments
E) equal to one; try to take over a firm with a Tobin's q = 0

Question

Quizplus · Accepted Answer

When Tobin's q is greater than one, it means that the market value of a firm's assets is worth more than the cost of replacing those assets. In other words, the market is signaling that the firm should invest in more capital to take advantage of this opportunity and potentially increase its profits.

When Tobin's Q Is ________, the Market Is Signaling That