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 fiscal advisors 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 sock price and decrease
shareholders wealth?.  To prove the point, they construct the
following example:  ?Suppose 2,000 new shares are issue 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 proportionally to $38.70?.
Evaluate this argument with particular attention to the assumption
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?

I have not enough fiancial skills to do this problem, but researching
for learning how to do it I found the (brief) answer at the Gary
Smith's page from the Department of Economics at Pomona College.

Since I cannot offer you further explanations I post the answer in
this comment box.
If you think that this covers your needs, please let me know and I
will post this comment in the answer box to claim the prize.

From the Old Tests section of Economics 156: Security Valuation and
Portfolio Theory at Gary Smith's page:
"Econ 126 1995 Final Examination Answers" (Problem 20, the last one):
 "The conservation-of-value principle suggests that selling shares for
their market value is a nonevent.
With the infusion of $40*(2,000) = $80,000 in cash, the total market
value of the company should increase from $400,000 to $480,000
--implying a per-share market value of $480,000/12,000 = $40 as
before.
If, however, they use the proceeds to make a crummy investment, the
market price will decline. The value of Tobin's q for existing assets
is:
q = 400,000/500,000 = 0.8
If the $80,000 in new cash is invested similarly and valued by the
market similarly, then its market value will be 0.8*($80,000) =
$64,000 --implying a per share price of $464,000/12,000 = $38.67, as
in the exercise. Thus it is not the sale of additional shares of stock
that depresses the stock's price; it is the investment of this money
in insufficiently profitable ventures."
http://www.economics.pomona.edu/GarySmith/Econ156/Econ126final95ans.HTML


To see the statement (problem 20):
"Econ 126 1995 Final Examination":
http://www.economics.pomona.edu/GarySmith/Econ156/Econ126final95.HTML


Hope that this helps you. 
I will wait for your response to this comment.

Regards.
livioflores-ga