Question

5. Assume a firm has a market value of $500, it has 50 units of capital with a price of $8 per unit. Compute Tobin’s q to determine whether the firm should invest in more capital.

    q = __________.    Invest? (Yes or no) __________

     6 – 7 Assume G = 50, T = 55, B = 200 and i = 5%.

6. What is the primary budget balance and dollar value of the balance?

Balance (surplus of deficit)? ___________ Amount of surplus or deficit = $________.

7. What is the total budget balance and balance amount?

Balance (surplus of deficit)? ___________ Amount of surplus or deficit = $________.

Answer 1

5. Tobin's q ratio would be . The market value is given to be $500, while the asset value would be dollars, which is the expenditure on capital. The q ratio would be . Judging by this value, the firm is overvalued, and should invest more in capital. Hence, the correct option for Invest would be Yes.

6. The primary budget balance would be (expenditure minus income) or .

Balance : Surplus.

Amount : $5.

It is to be seen that income exceeds expenditure, which is a case of surplus indeed.

7. The total budget balance would be or .

Balance : Deficit.

Amount : $5.

The surplus is surpassed by the interest payment on the debt.