Equity valuations in today's market are arguably too high. Many analysts assert that price-to- earnlngs ratios are so high as to constitute an irrational valuation bubble" that is bound to burst and drag valuations down. Skeptics are especially wary of the valuations for high-tech and Inter- net companies. Proponents of the "new paradigm argue that the unusually high price-to- earnings ratios associated with many high-tech and Internet companies are justified because modern business is fundamentally different. In fact, many believe these companies are still, on average, undervalued. They argue that these companies have invested great sums in intangible as- sets that will produce large Sature profits. Also, research and development costs are expensed This means they reduce income each period and are not reported as assets on the balance sheet. Comequently, earnings appear lower than normal and this yiekls price- to eamings ratios that ap pear unreasonably high PROBLEM 2-8 Cain owyduhom Required Assess and critique the positions of both the skeptics and proponents of this new paradigm