The below company and it's financial information are ficticous.
I need some help in answer this question and understanding the
principles involved as it relates to a finance course I am taking.
Please answer. Thank you.

Here is recent financial data on Pisa Construction, Inc.

Stock price $40 
Market value of firm $400,000
Number of shares 10,000 
Earnings per share $4
Book net worth $500,000 
Return on investment 8%

Pisa has not performed spectacularly to date. However, it wishes to
issue new shares to obtain $80,000 to finance expansion into a
promising market. Pisa?s financial advisers think a stock issue is a
poor choice because, among other reasons, ?sale of stock at a price
below book value per share can only depress the stock price and
decrease shareholders? wealth.?

To prove the point they construct the following example: ?Suppose
2,000 new shares are issued at $40 and the proceeds are invested.
(Neglect issue costs.)Suppose return on investment doesn?t change.
Then

Book net worth _ $580,000
Total earnings _ .08(580,000) _ $46,400
Earnings per share = 46,400 = $3.87
12,000

Thus, EPS declines, book value per share declines, and share price
will decline proportionately to $38.70.?

Evaluate this argument with particular attention to the assumptions
implicit in the numerical example.

Do you think that there could be a shortage of finance for new
ventures? Should the government help to provide such finance and, if
so, how?

Off the top of my head, I can think of three ways to finance this
venture in two main categories.
Keep the venture under the current firm?s name:
1)	Issue Corporate bonds
2)	Consult a bank for a business loan
3)	Consult a VC for loan
Open a new firm
1)	Issue stock for the new firm
2)	Consult a bank for a business loan
3)	Consult a VC for loan