Final answer:
Borrowers can reassure banks by providing financial statements and business plans. Established firms can attract outside investment based on public financial information. Investment strategies vary by age due to different risk tolerances and time horizons.
Step-by-step explanation:
Lisa, who is turning 64 and considering retirement, is in discussion with the bank to remove her personal guarantee on her company's bank loans, providing financial statements to demonstrate the company's health and profitability. To reassure a bank facing imperfect information about loan repayment, a borrower like Lisa can provide detailed financial statements, a solid business plan, and evidence of past profitability. When a firm becomes well-established, outside investors, such as bondholders and shareholders, may be more willing to provide financial capital without requiring personal connections to the managers, as they can rely on the public financial information to make investment decisions.
As for the choice between borrowing and issuing stock to finance a major expansion, it depends on factors such as the company's willingness to assume debt, interest rates, the desire to retain control, and the need for quick capital. Companies can fail if the internal controls and safeguards designed to ensure the proper functioning and financial integrity of the business are not in place or fail. Lastly, the investment strategies differ between a 30-year-old and a 65-year-old primarily due to differences in risk tolerance and time horizon for retirement planning.