John has a great idea to setup a pie and pastie factory. He needs $200,000 to buy the equipment and to lease suitable premises for a year. He is not sure whether he should setup a company and issue 200,000 shares to his friends, or else try to borrow $200,000 from a bank to raise those funds. Explain to him the advantages and disadvantages of both alternatives.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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John has a great idea to setup a pie and pastie factory. He needs $200,000 to buy the
equipment and to lease suitable premises for a year. He is not sure whether he should setup a
company and issue 200,000 shares to his friends, or else try to borrow $200,000 from a bank to
raise those funds.
Explain to him the advantages and disadvantages of both alternatives.

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