MJ Enterprises Has 50 Million Shares Outstanding with a Market

question 2

Essay

MJ Enterprises has 50 million shares outstanding with a market price of $25 per share and no debt.MJ has had consistently stable earnings,and pays a 35% tax rate.Management plans to borrow $500 million on a permanent basis through a leveraged recapitalization in which they would use the borrowed funds to repurchase outstanding shares.Calculate MJ's share price following announcement of the recapitalization plan.

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Definitions:

Factor Analytic Technique

A statistical method used to describe variability among observed, correlated variables in terms of potentially lower number of unobserved variables, called factors.

Test Construction

The process of developing a test that accurately measures what it is intended to measure, with reliability and validity.

Factor Analytic Approach

A statistical method used in psychology to identify clusters of related items (factors) on tests or surveys, revealing underlying variables.

Correlations

Statistical measures that describe the extent to which two variables change together, but not necessarily indicating causation.