The Markville Co. and the Unionville Co. have both announced IPOs at $40 per share. One of

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The Markville Co. and the Unionville Co. have both announced IPOs at $40 per share. One of these is undervalued by $9, and the other is overvalued by $4, but you have no way of knowing which is which. You plan to buy 1000 shares of each issue. If an issue is underpriced, it will be rationed, and only half your order will be filled. If you could get 1000 shares in Markville and 1000 shares in Unionville, what would your profit be? What profit do you actually expect? What principle have you illustrated?

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Fundamentals of Corporate Finance

ISBN: 978-0071051606

8th Canadian Edition

Authors: Stephen A. Ross, Randolph W. Westerfield

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