Dawn Raid Gloves Sdn Bhd (DRG) is going public to raise capital. DRG wants to expand its operation to take advantage of the booming glove manufacturing business amid the COVID-19. After some background checking, you have ascertained the following information for DRG: 3-month Malaysia Islamic Treasury Bill rate 3.28% Expected return on a market portfolio 9.45% Beta value for DRG 1.2512 DRG dividend growth rate 6% per annum

a. Determine the required rate of return from investment in DRG shares. (2 marks)

b. Consider that DRG have forecasted that they will be able to pay RM0.26 as dividend per share next year. Taking this information into account, what would you suggest to the directors of DRG as the fair IPO price for DRG? (2 marks)

c. Assume that the DRG directors do not agree with your IPO pricing suggestion in b.. They insist that DRG IPO price should be set at RM10.00 per share. Analyse and explain to the directors the possible consequences of this action, assuming your pricing in b. is indeed fair. (6 marks) d. Briefly promote to DRG the benefits of stock underwriting so that they take up this services with the investment bank you are working for. (4 marks)