Final answer:
Choosing between borrowing and issuing stock to fund a major expansion for a small firm depends on the owner's preference for control vs. sharing ownership, the firm's ability to manage debt repayment, and the desire to avoid debt. Both options have different financial implications and costs associated with them.
Step-by-step explanation:
The decision to raise funds for a major expansion of a small firm through either borrowing or issuing stock depends on several factors. When choosing borrowing, the owner maintains control over the company but takes on debt which must be repaid with interest. This can be a good option if the company has a solid plan for expansion and the cash flow to cover debt payments. Alternatively, issuing stock dilutes ownership, but it doesn't require repayment and can provide a surge of capital without debt obligations.
If a business owner is confident in their expansion plan and wants to maintain control, they might prefer borrowing. However, if they are open to sharing ownership and want to avoid debt, issuing stock could be the better choice. Additionally, the impact on cash flow, tax considerations, and the current state of the market might influence this decision. It's also important to consider the costs associated with each option, such as interest payments for loans versus the administrative costs of issuing stock.