Question
2. What is Tobin’s q, and what does it has to do with investment?
Answers
GPT 3.5
Tobin's q is a ratio developed by economist James Tobin that compares a firm's market value to the replacement cost of its assets. It is calculated by dividing the market value of a company by the replacement cost of its assets.
Tobin's q is often used as an indicator of whether a firm should invest in new capital or assets. If the ratio is greater than 1, it suggests that the market value of the company is higher than the cost of replacing its assets, indicating that the company should invest in new assets to take advantage of potential growth opportunities. Conversely, if the ratio is less than 1, it suggests that the market value of the company is lower than the replacement cost of its assets, indicating that it may be more beneficial for the company to sell off assets rather than invest in new ones.
Tobin's q is often used as an indicator of whether a firm should invest in new capital or assets. If the ratio is greater than 1, it suggests that the market value of the company is higher than the cost of replacing its assets, indicating that the company should invest in new assets to take advantage of potential growth opportunities. Conversely, if the ratio is less than 1, it suggests that the market value of the company is lower than the replacement cost of its assets, indicating that it may be more beneficial for the company to sell off assets rather than invest in new ones.