QUESTION $3[25$ MARKS$]$

HK is a long established, family owned and run, IT Consultancy Company. The company

has experienced rapid growth in recent years.

Recent financial history for $HK$ :

In recent years, investment has been funded by cash held generated by the business but HK

now requires additional funds to finance significant expansion. The Directors have

considered additional bank finance but their preference is for an initial public offering $($IPO$),$

that is$,$ an offer for sale of shares to the public. However, the Directors are concerned about

the implications of an IPO on the financial strategy of the company in the areas of dividend,

financing and investment.

Required:

$($a$)$ Evaluate the current dividend policy of $HK.[6$ marks$]$

$($b$)($i$)$ Describe the process involved in an IPO. $[3$ marks$]$

$($ii$)$ Advise on the potential risks with an IPO and what action can be taken to

minimise such risks.

$[4$ marks$]$

$($c$)$ Discuss the concerns of the Directors regarding the possible implications of becoming

a listed company on dividend, financing and investment decisions and the

interrelationship between them.

$[12$ marks$]$