What is the purpose of an initial public offering (IPO)?

• A. To distribute dividends to shareholders
• B. To issue bonds for private borrowing
• C. To raise cash for expansion by selling shares
• D. To acquire other companies

Answer: (C)

The purpose of an initial public offering (IPO) is primarily to raise cash for a company's expansion by selling shares to the public for the first time. When a company decides to go public, it offers its stock to investors, which allows it to access a larger pool of capital than it could through private funding. This capital can then be used for various purposes, such as expanding operations, investing in new projects, paying off debts, or enhancing research and development efforts. By issuing shares, the company essentially engages in a form of fundraising that can significantly support its growth objectives.

In contrast, distributing dividends to shareholders is a practice that occurs after a company has generated profits and does not pertain to the primary function of an IPO. Issuing bonds for private borrowing is a separate financial mechanism that involves debt rather than equity and does not encapsulate the goals of going public. Similarly, while merging with or acquiring other companies can be a use of IPO funds, the core reason for conducting an IPO is to generate cash through the sale of shares rather than directly to make acquisitions.