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Determining the method of comparables

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Question 1: Use all of the above data to estimate the value of Macy's shares. One problem above is the negative EPS (i.e. loss) by JC Penney. What should you do if you have negative earnings for a comparable firm? If you do not include JC Penney in the P/E calculations (but use it in the other multiples), using the "Method of Comparables", what would you find as the value of Macy's shares? Would you invest in Macy's shares?

Question 2: If instead of completely dropping JC Penney from the P/E calculations and just use "0" for JC Penney's EPS, using the "Method of Comparables", what would you find as the value of Macy's shares? Would you invest in Macy's shares?

Question 3: How different are your results in questions (1) and (2)? Why do you think your estimates for Macy's shares are so different in these two alternative actions? Which action would be wiser: Dropping JC Penney completely from the P/E calculations, or instead entering a value of "0" for its EPS number?

Reference no: EM132465748

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