According to James Tobin,the long run value of Tobin's Q should tend toward
A)0.
B)1.
C)2.
D)infinity.
E)none of the above.

Question

Quizplus · Accepted Answer

Tobin's Q is an indicator of a firm's investment opportunities and the long run value of Tobin's Q should tend towards 1, which indicates that the market value of a firm's assets is equivalent to the replacement value of those assets. Tobin stated that a Q lower than 1 reflects an undervaluation of assets, while a Q greater than 1 suggests an overvaluation. Therefore, a value approaching 1 suggests that the market value of a firm's assets is in line with the costs to replace those assets.

According to James Tobin,the Long Run Value of Tobin's Q