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In Firm A, the profit for the current year is t. Suppose Firm A plans to rent its machinery at the real rate of interest. The current price of the machinery is 30t, the real rate of interest is 2% per year of the current price, and the rate of depreciation is 6% per year of the current profit.

On the basis of static expectations, the expected present value of profits is enter your response here. (Round your answer to two decimal places.) (Properly format your expression using the tools in the palette. Hover over tools to see keyboard shortcuts. E.g., a subscript can be created with the _ character.)

Suppose Firm A is planning to invest in a machinery today that yields a profit of 400 in year t+1. The constant rate of depreciation is 9% per year, the real rate of interest is 3% for year t+1, and this rate increases by 20 basis points every year (1%=100 basis points).

The expected present value of the profit for year t+5 is enter your response here assuming that the profit increases at a rate of 5% per year. (Round your answer to two decimal places.)

There are two firms, Firm A and B, belonging to the same industry with the following details.

Particulars	Firm A ()	Firm B ()
Earnings before interest and tax	400	300
Capital stock	270	270
Interest payments	40	20
Tax payments	50	40

Suppose Firm A is expected to make a profit of

6 next year and increase by 10% every year and Firm B is expected to make a profit of 4 next year and increase by 10% every year. Which of the following is true?

A.

In the current year, Firm B's investment is more than Firm A's investment.

B.

In the current year, Firm A's investment is more than Firm B's investment.

C.

In the next year, Firm B's investment is more than Firm A's investment.

D.

In the next year, Firm A's investment is more than Firm B's investment.

Tobin's q is

positively

negatively

related to investment and

positively

negatively

related to real interest rates

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