A decline in Tobin's q can be caused by ________.
A)a rise in the market value of a firm
B)an increase in stock prices
C)a decline in stock prices
D)a decline in the replacement cost of capital

Question

Quizplus · Accepted Answer

Tobin's q is calculated by dividing the market value of a firm by the replacement cost of capital. A decline in Tobin's q would therefore mean that the market value of the firm has decreased relative to the replacement cost of capital. This could be caused by a decline in stock prices (choice C), which would decrease the market value of the firm but not necessarily the replacement cost of capital. The other choices, including a rise in the market value of a firm (choice A), an increase in stock prices (choice B), and a decline in the replacement cost of capital (choice D), would not cause a decline in Tobin's q.

A Decline in Tobin's Q Can Be Caused by ________