The Vuvuza Corporation currently has 10 million shares of stock outstanding,the stock is trading for $42 per share,and its stock of capital goods is valued at $70 million.Based on the Tobin's q value for the Vuvuza Corporation,we would expect Vuvuza to

Question

Quizplus · Accepted Answer

Tobin's q value measures the ratio of market value of a firm to its replacement cost. A q value greater than 1 suggests that the market values the firm's future investment opportunities, while a q value less than 1 suggests that the market values the the firm's existing assets more than its growth opportunities. In this case, the q value is not provided, but since the stock is trading for $42 per share and the stock of capital goods is valued at $70 million, it suggests that the market is valuing the existing assets of the firm more than its investment opportunities. Therefore, to increase the q value and signal to the market that it has promising investment opportunities, Vuvuza should increase its capital stock to finance new investments and grow the company.

The Vuvuza Corporation Currently Has 10 Million Shares of Stock