If the value of Tobin’s Q is “4”, what does it imply about the relation between asset and replacement?
a. Asset is worth four times its replacement cost
b. Replacement cost is four times its asset cost
c. Asset is worth half the replacement cost
d. Replacement is half the asset
a. Asset is worth four times its replacement cost
When Q is positive, “2” for example, it means an asset is worth twice its replacement cost. In such a situation, a company is getting high returns on a class of assets.
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