It is your first day at a major hedge fund. Your director comes up to you and goes "Hey, ZOOM's trading at a P/E ratio that's much than higher Goldman Sach's. Clearly ZOOM is overvalued!" Let's figure out if this is necessarily true. Suppose a common and constant discount rate of 10%. Zoom currently has $.05$ earnings a share while Goldman Sachs has a dollar a share earnings. [.5pts]

Part A: Goldman Sachs Valuation: Suppose that Goldman's expected earning growth is 3.33333% annually. What's the present discounted value of Goldman's earnings? What is the price-earnings (P/E) ratio? (Compute as PDV over earnings today) [.5pts]

Part B: Zoom Valuation: Suppose that Zoom's expected earning growth is 9% annually. What's the present discounted value of Zoom? What is Zoom's P/E Ratio?

Part C: Analysis: Given the assumptions in Part 1 and 2, is your director right? Why or why not? [.5pts]