10. IPO pricing [LO 15.3] The following material represents the cover page and summary of the prospectus for the initial public offering of the Pest Investigation Control Limited (PICL), which is going public tomorrow with a firm commitment initial public offering managed by the investment banking firm of Erlanger and Ritter. Answer the following questions:

1. Assume you know nothing about PICL other than the information contained in the prospectus. Based on your knowledge of finance, what is your prediction for the price of PICL tomorrow? Provide a short explanation of why you think this will occur.

2. Assume you have several thousand dollars to invest. When you get home from class tonight, you find that your stockbroker, whom you have not talked to for weeks, has called. She has left a message that PICL is going public tomorrow and that she can get you several hundred shares at the offering price if you call her back first thing in the morning. Discuss the merits of this opportunity.