The Watson Co. and the McIlroy Co. have both announced IPOs at $40 per share. One of
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The Watson Co. and the McIlroy Co. have both announced IPOs at $40 per share. One of these is undervalued by $8, and the other is overvalued by $4.75, but you have no way of knowing which is which. You plan on buying 1,000 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 1,000 shares in Watson and 1,000 shares in McIlroy, what would your profit be? What profit do you actually expect? What principle have you illustrated?
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Sreejith M
I am a post graduate in "Commerce" currently working in a private firm as "Senior Executive - Audit, Accounts and Taxation". From my past ten years experience, I have a very good practical exposure in the areas of accounts, audit, taxation (Indian) and management consultancy. Besides, I am taking classes for commerce students in my free time due to my passion for teaching. Moreover, I like reading/watching curious and amazing facts (Examples: Articles of journalists/other reputed persons about personality development, social behaviour, positive attitudes, time and stress management, good habits, professional ethics at work etc.). I believe in inculcating conceptual knowledge so that a student will be able to apply his or her theoretical knowledge in a practical scenario. This will help in re-analyzing alternative solutions to a particular problem or matter and also to find the best alternative among the rest. Always remember the famous quote that "Every expert is once a beginner".
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Related Book For 
Essentials of Corporate Finance
ISBN: 978-0078034756
8th edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan
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