Which one of the following statements about Initial Public Offerings (IPOs) is NOT true?

• A. IPOs guarantee that the issuing company will be profitable in the future.
• B. IPOs allow a private company to raise capital by selling shares to the public for the first time.
• C. After an IPO, the company's shares are typically traded on a public stock exchange.
• D. The process of an IPO often involves underwriters to help determine the offering price and sell the shares.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of an Initial Public Offering (IPO). An IPO is the process by which a private company offers its shares to the public for the first time, allowing it to raise capital and transition into a publicly traded company.
2. Step 2: Analyze the statement 'IPOs guarantee that the issuing company will be profitable in the future.' This is incorrect because an IPO does not guarantee future profitability; it only provides a mechanism for raising funds. Profitability depends on the company's operations and market conditions.
3. Step 3: Review the statement 'IPOs allow a private company to raise capital by selling shares to the public for the first time.' This is true because the primary purpose of an IPO is to raise funds by offering shares to public investors.
4. Step 4: Examine the statement 'After an IPO, the company's shares are typically traded on a public stock exchange.' This is accurate, as IPOs enable companies to list their shares on exchanges like the NYSE or NASDAQ, making them accessible to public investors.
5. Step 5: Evaluate the statement 'The process of an IPO often involves underwriters to help determine the offering price and sell the shares.' This is correct because underwriters, typically investment banks, play a crucial role in the IPO process by advising on pricing, marketing, and selling the shares to investors.