J. C. Penney Company, Inc. Equity Valuation and Analysis As of ...

This particular stock price in our sensitivity analysis used a WACC of 8.72 percentand a growth rate of 5.9 percent. From here, we can begin to draw conclusionsand form a sensitivity analysis.The free cash flows model shows us, like many of our other models, thatthe firm is overvalued at June 1, 2007. Most of our conclusions draw on the factthe firm is overvalued. The few that fell into the firm being fairly valued, +/- 15percent, required a weighted average cost of capital of 8 percent and growthrates ranging from 5.9 to 6.5 percent. Once again, this model relays that J. C.Penney is an overvalued firm.Residual Income ModelOf all the intrinsic valuation models, this is said to be the most accurate.This is explained by the very high percentage of the present value of residualincome in the overall value of the firm. Because this number is based off offorecasted values of earnings rather than perpetuities, this model is a fairlyaccurate glace at the firm. Following is the sensitivity analysis and discussion ofthe residual income model in respect to J. C. Penney.Sensitivity AnalysisGrowth Rate0 -0.15 -0.25 -0.4 -0.50.05 127.8 78.08 72.55 68.87 67.530.07 79.18 60.3 57.55 55.62 54.98K e 0.09 53.73 47.22 46.07 45.22 44.90.11 38.62 37.45 37.21 37.02 36.950.1361 26.61 28.15 28.52 28.81 28.93Undervalued $94.29 Actual PPS (June 1, 2007): $81.99117