c. If the market value of firm A is $1.5 million and the replacement cost of capital is $450,000, find the Tobin's q. d. Should the firm replace capital? Explain your response.
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c. If the market value of firm A is $1.5 million and the replacement cost of capital is $450,000, find the Tobin's q.
d. Should the firm replace capital? Explain your response.
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- if tobin q is greater than one , then the stock market value installed capital at more tha its cost to replace. this creates an incentive to invest, because managers can raise the market value of the firms stock by selling more capital true or falseIn an economy, the future marginal product of capital is MPKf=100-K, where K denotes the future capital stock. The price of capital is 100, the depreciation rate of capital is 0.1 and the current capital stock is 10. An equation relating desired investment (I) to real interest rate (r) isShow graphically how the capital stock will respond to(i) a permanent increase in output price;(ii) a temporary investment tax credit scheme that rebates a fraction r of the value ofinvestment.
- Derive the relationship between MPL and MC algebraically. Why is this relationship critical to showing how the law of diminishing returns affects our expectations regarding SR costs?Explain how Life-Cycle Hypothesis and the Permanent Income Hypothesis, explain the difference between long run APC and short run APC.In what direction will each of the following occurrences shift the investment demand curve, other things equal? a. An increase in unused production capacity occurs. b. Business taxes decline. c. The cost of equipment fall. d. Widespread pessimism arises about future business conditions and sales revenue. e. A major new technological breakthrough creates prospects for a wide range of profitable new products.
- An increase in the money stock has no effect on equilibrium income whenever the a. IS curve is horizontal. b. LM curve is vertical. c. IS curve is vertical. d. LM curve is horizontal.Real Business Cycle models, or RBCs, assume there is one perfectly rational household that represents all households, and one firm that represents all firms. Thus, these models are also referred to as representative agent models. a. True b. FalseThe firm you work for wants you to provide some insight into the investment environment in Mexico before deciding to enter the market. You conduct some research and find a large dispersion of MRPK across firms in Mexico. You also notice that state-owned firms have lower MRPK. Which of the following observations can you make? (there can be more than 1) Firms in Mexico have a hard time expanding due to constraints on the labor market Private firms are at an advantage in Mexico as they face lower capital costs than those owned by the state Resources are likely misallocated because capital is not flowing from firms with low MRPK to firms with high MRPK Your firm may find it more costly to borrow than its state-owned competitors
- Please Show Each and Every Working VERY CLEARLY. There are NO multi-questions here, only just multi-PART questions which are CONNECTED to each other, and hence, Please do NOT Leave any, Thank You! marginal propensityMany companies hold significant amounts of excess cash, that is, cash above the amount required for day-to-day operations. Does including excess cash as part of invested capital distort the ROIC upward or downward? Why?What is meant by “excess sensitivity” of consumption? Is this view of consumption consistent with the permanent-income hypothesis? Explain. How does the stock market affect consumption according to the permanent-income hypothesis? Is this prediction in line with the empirical evidence? Explain.
