A firm lives for two periods, t=0,1. In each period, it operates the technology F (K-1) = AK-1 where A, is the firm's total factor productivity, K, is its capital and labor inputs respectively, and 0 < a 1 the firm's investment is positive, and negative otherwise. 3. Suppose A rises, all else fixed. What is the impact on Tobin's Q? What about on investment In? 4. Suppose you were asked to predict whether a given company is likely to begin investing in new capital based on the model above. (a) Describe some challenges in finding an empirical value for Tobin's Q and how one typically calculates it using data on market values of debt and equity and on the replacement cost of capital. List some sources for this data. (b) How well do empirically estimated values of Tobin's Q actually predict firm investment?