The broker offers to sell you some shares of ABC & Co. common stock that paid annual dividend of $2.00 yesterday. ABC's dividend is expected to grow at 5% per year for the next 3 years. If you buy the stock, you plan to hold it for 3 years and then sell it. The appropriate discount rate is 12%.

1. From the perspective of either an investor and firm, which of the financing ways is preferable? Debt or equity? Please justify your choice with relevant reasons