Fitzpatrick Sporting Goods is embarking on a massive expansion. Assume plans call for opening 30 new stores during the next four years. Each store is scheduled to be 45% larger than the company’s existing locations, offering more items of inventory, and with more elaborate displays.
Management estimates that company operations will provide $1.75 million of the cash needed for expansion. Fitzpatrick must raise the remaining $7 million from outsiders. The board of directors is considering obtaining the $7 million either through borrowing or by issuing common stock.

Requirement
1. Write a memo to Fitzpatrick’s management discussing the advantages and disadvantages of borrowing and of issuing common stock to raise the needed cash. Which method of raising the funds would you recommend?