The MEDCOM firm is currently selling for 32, with trailing 12-month earnings and dividends of 1.23 and 0.64, respectively. The Price to Earnings ratio (P/E) is 26, the Price to Book Value ratio (P/BV) is 6.5 and the Price to Sales ratio (P/S) is 2.8. The return on equity is 27 percent and the profit margin on sales is 11 percent. The Treasury bond rate is 4.5 percent, the equity risk premium is 6 percent and MEDCOMs beta is 1.3.

- Calculate the MEDCOMs required return, based on the Capital Asset Pricing Model. - Assume that the dividend and earnings growth rates are 9.5%. Calculate the P/E, P/BV and P/S ratios that would be justified given the required rate of return in i) and current values of the dividend payout ratio, ROE and profit margin.

- Given that the assumptions of the constant growth model are appropriate, state whether MEDCOM is fairly priced, overpriced, or underpriced.