Marco’s Sporting Goods is embarking on a massive expansion. Assume the plans call for opening 40 new stores during the next three years. Each store is scheduled to be 35% larger than the company’s existing locations, offering more items of inventory, and with more elaborate displays. Management estimates that company operations will provide $2.5 million of the cash needed for expansion.
Marco must raise the remaining $7.75 million from outsiders. The board of directors is considering obtaining the $7.75 million either through borrowing or by issuing common stock.

Requirement
1. Write a memo to Marco’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?