Tobin's q is equal to
A)the ratio of capital's market value to its replacement cost.
B)the ratio of capital's replacement cost to its market value.
C)the expected after-tax real interest rate.
D)the stock market value of a firm.

Question

Quizplus · Accepted Answer

Tobin's q is defined as the ratio of a firm's market value of capital to its replacement cost. It is used as a measure of investment opportunities and efficiency in the allocation of investment resources. Option B is the inverse of Tobin's q and hence not correct. Option C refers to real interest rate which is a different concept and Option D only refers to the stock market value of a firm and not the value of capital.

Tobin's Q Is Equal to