Your neighbor Freewheeling Franklin has a very successful new internet-based technology company. While his company has great cash flow, you see Mr. Franklin has a collection of five expensive sports cars in his newly built garage. You also see him throwing some extravagant parties every weekend where he serves expensive champagne.
How would you handle these:
- Mr. Franklin asks you for a loan to help expand his business and offers you an interest rate considerably higher than you would get from leaving your money in the bank. As a lender, what measures might you take to make sure you get your money back and Mr. Franklin won't waste the money?
- Mr. Franklin asks you to buy one-third of his company, and wants to use the money from selling this portion of the company to expand his business. As a shareholder, what steps might you take to make sure he spends his profits and the investment money you gave him wisely?