...Guillermo’s Furniture Store Aleshia Huffman FIN 571 John Kushner April 29, 2013 Guillermo’s Furniture Store Guillermo’s Furniture Store, a once profitable business in Sonora, Mexico, has recently experienced some new competition and a decrease in profits. By using three different financial principles, Guillermo has been able to identify several possible solutions to his problem. While there is no clear “right” answer for his company, he has found three viable solutions to his loss of profits situation, including imitation, diversification, and using the theory of comparative advantage. The Behavioral Principle The behavioral principle states that you can “look for guidance in what other firms similar to your firm are currently doing and have done in the recent past” (Emery, Finnerty, & Stowe, Chapter 2, 2007). Basically, this principle says that you should look at others in your industry for direction on how you should proceed. In Guillermo’s case, he has researched his competition to see how they have managed to thrive in this new market situation. After finding out that many other companies are consolidating, he decided that was not the option for him; he does not want to lose his independence. Still, by looking at the competition, he was able to identify one solution to his profit loss: consolidation. The Principle of Diversification A second financial principle is the principle of diversification. The idea here is that investors do not want to invest...
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...Guillermo Analysis Paper FIN 571 June 11, 2012 Mr. John Kushner Guillermo Furniture Store Analysis Guillermo has a manufacturing company is Mexico. Guillermo has an excellent location for his business because of the supply of timber for his furniture. Inexpensive labor and slight raise in the price of the furniture had Guillermo making a good profit. The business was going well for Guillermo until a new competitor entered the furniture market. The rise in population and jobs increased the cost of labor causing Guillermo’s business to suffer. The success is challenged by the international chain that recently has opened a store in the community. The result has caused a rise in cost, a drop in prices and producing a smaller market share for the smaller company. Guillermo’s owner has explored a number of options for dealing with this challenge. He is unwilling to merge with another company, so he is left with several options one investing in new technology, which is expensive, laser lathe to reduce his production cost, and to focus on marketing his patented furniture coating process. The principle of valuable ideas is to have a new product or services are unique from competitors and will add value to business. Guillermo has a unique patented method for constructing a coating for the furniture. Guillermo should consider making changes to his business, such as coordinating his distributor chain to become a demostrator for this other...
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...Guillermo Furniture Store jhkjhkjhkjhkhkhkjh ACC/543 10/14/2013 Curtis Brooks Guillermo Furniture Store Guillermo is currently an independent furniture maker, however recent advents in technology as well as market conditions in his area have hit his business where it hurts – in the bottom line of his profits. After much research, Guillermo has come up with three viable options for saving his business and his profits. The first is to increase his technology by using a hi-tech machine with a computer programed laser to cut the wood. This option would decrease the labor needed, as well as increase the ability to switch to new custom pieces easily. The downside to this option is that the implementation would be expensive. A second option would be for Guillermo to switch from being a manufacture to a distributor by joining forces with another company. He would be the representative to distribute in North America. His store would no longer manufacture but rather distribute. The third option would be for Guillermo to add/change the product which is uses to the finish of the furniture. Currently Guillermo is using a product which he created which adds a flame resistant and stain resistant coating to the finish product of the furniture. Changing this product for a comparable product which would do the same thing for a cheaper cost might help. Of these options, the recommended option for Guillermo is to go with the new hi-tech machine. While the labor dollar per hour increases...
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...Abstract Guillermo’s Furniture Manufacturing Company is in Sonora, Mexico in a gorgeous vacation spot. Guillermo’s is the largest furniture store in the area and made furniture for years, until the late 1990s that a new competitors joined the furniture business that has put a dent into Guillermo’s business. Competitors have new technology when to allow them to come in with lower prices and lure customers but Guillermo has to decide on the best options for the company either upgrade or move forward working as he did making quality products for customer’s expectation. In order for Guillermo to improve his company, Guillermo has to seek other alternatives and make financial decisions to increase sales to make profits. The contents of the paper will examining Sensitivity Analysis, Weighted Average Cost of Capital (WACC), multiple valuation techniques in reducing risks, calculate NPV for future cash flows and work out pro forma cash flow budget for the next five years for the organization and analyze the companies projected earnings (UOP, 2009). Analysis of Different Alternatives Guillermo has three available alternatives to evaluate the furniture store. First alternative is to keep itself in the current position. The current managers use capital budgeting techniques to find the best project among the group of projects. Current budget for Guillermo is $42,577 net income before taxes could observe capital markets for just a short time to convince consumer the...
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...B1. (Choosing financial targets) Bixton Company's new chief financial officer is evaluating Bixton's capital structure. She is concerned that the firm might be underleveraged, even though the firm has larger-than-average research and development and foreign tax credits when compared to other firms in its industry. Her staff prepared the industry comparison shown here. a. Bixton's objective is to achieve a credit standing that falls, in the words of the chief financial officer, "comfortably within the ‘A' range." What target range would you recommend for each of the three credit measures? b. Before settling on these target ranges, what other factors should Bixton's chief financial officer consider? c. Before deciding whether the target ranges are really appropriate for Bixton in its current financial situation, what key issues specific to Bixton must the chief financial officer resolve? a. To be “comfortably” within the range, the firm should stay off the low end of the ratings. Fixed Charge Coverage = 3.40 - 4.30 Cash Flow / Total Debt = 55 - 65 Long-Term Debt / Total Capitalization = 25 - 30 b. Ability to use fully non-interest tax credits and debt management considerations such as issuance costs. The CFO should also consider that the firm’s R&D is an intangible asset and that lenders may not be willing to loan the same percentage of debt to Bixton as to its competitors. c. The CFO needs to consider R&D and foreign tax credits. The additional tax...
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...Guillermo’s Furniture 1 GUILLERMO’S FURNITURE Guillermo’s Furniture Michelle Pate Sundar Shankar Mani Vannan Osvaldo Perez Niaz Tavakoli FIN571 University of Phoenix November 2009 Guillermo’s Furniture 2 Introduction During the history of furniture, designing trends have correlated to society’s changes. Today, because we have access to different fabrics, textures and technology advancements, people have a variety of furniture to choose from. Historians have a record of the year and technique in which furniture was made. Presently, you can find hand-made furniture at auctions, historic places and museums. They have a higher value and are looked at as a work of art because they are created by an artist’s imagination. Furniture makers often use oak wood in their furniture, since it is stronger and will last longer than other wood. It would be more difficult to create custom hand-made furniture using an automated machine because it takes the art out of the furniture, though it is less expensive. It takes more time and money to create hand-made furniture and get it ready for the selling stages than to create automated furniture or become a distributor. Guillermo’s Furniture Store is going through changes and he needs to adapt new strategies that would help him overcome the market’s competitors and stay in business. Guillermo’s Furniture Store is located in Sonora, Mexico and is one of the biggest companies that manufacture furniture in North America. This area has a...
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...The Guillermo Furniture Store Scenario Susie Smith FIN/571- Corporate Finance September 26, 2011 Danica Djordjevich, Instructor The Guillermo Furniture Store Scenario Guillermo Navallez is the owner of a furniture manufacturing company located near his New Sonora, Mexico home. This company specialized is handcraft products priced at a slight premium for the quality they represent. This scenario presents a challenge from the arrival of new competition from overseas that has entered the furniture market with headquarters a few miles from Guillermo’s location. This new competitor uses a high-tech approach and provides furniture to exact specifications at rock-bottom prices. In addition one of the largest retailers located a few miles from Guillermo Furniture Store. This factor had a impact on the company because of the growth in development, influx of people, and increase in jobs. The influence from new competition and an increase in labor cost resulted in profit margins at Guillermo shrinking as prices fell and the cost to operation increased substantially (University of Phoenix, 2011). Alternatives Three alternatives that Guillermo must meet head-on to adapt to the current changing market environment are obvious to remain competitive. The first is to continue what he is currently doing. The second alternative is to go high-tech this would produce his custom furniture at a lower cost by reducing labor cost, and the third is to consider operation as a furniture...
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...Guillermo Furniture Store Scenario Accounting is a daily function in many areas in our lives. Whether it is budgeting in our homes, or business, accounting services are useful and necessary. Guillermo Navallez has a very successful furniture business near his home in Sonora, Mexico. In the 1990’s Guillermo’s business was facing new competition. Rising costs and falling prices were causing Guillermo’s profit margin to shrink (University of Phoenix Guillermo Furniture Store Scenario, 2011). In this paper discussion topics will include how Guillermo can use budget and performance reports in his decision-making process, how ethics can play a role in the process, and relevant accounting information in the decision-making process. Budget Reports Budget reports help control spending. The definition of a budget is “quantitative expression of a plan of action” (Horngren, Sundem, Stratton, Burgstahler, and Schatzberg, 2008). Using a budget report, Guillermo can keep track of all business expenditures. The budget report can also reflect if there is any excessive or wrongful spending. Budget reports are also relevant accounts for business earnings based on product sales. Guillermo can have an idea of which products are best sellers versus those products that are not doing so well allowing him to make any necessary adjustments to his inventory. Performance Reports “Performance reports provide feedback by company results with plans and by highlighting variances, which are deviation...
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...Guillermo Furniture Store Concepts Paper Eric Eif FIN/571 07 March 2012 Instructor: Uzell Freeman Guillermo Furniture Store Concepts Paper Guillermo Navallez and his furniture manufacturing business in Sonora, Mexico, are experiencing common occurrences for a small business: the arrival of a new, bigger competitor to his local market, and an increase in his labor costs, as the local community expands and grows. During times of financial turmoil, it is essential for small business owners to remember the twelve basic concepts and principles of finance. In the following paragraphs, these principles are reviewed with Guillermo’s Furniture Store (GFS) scenario as the illustration. (University of Phoenix, 2012) Principles Concerning Competition in the Economic Environment The first four principles to be looked at deal with competition in economic environments. The Principle of Self-Interested Behavior This first principle establishes that people and businesses will act in their own self-interest. With respect to Guillermo, this would mean that he can be assumed to want to take action in order to correct the lower income he is experiencing due to the increased competition and higher labor costs. It is understood he wants to protect his income, and defend his company’s market share. (Emery, Finnerty & Stowe, 2007) The Principle of Two-Sided Transactions Establishing that there are two sides to every transaction – a buyer and a seller...
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...Guillermo Furniture Store Case Study The aim of this paper is to examine the Guillermo Furniture case study. It begins with a description of the store, the current market challenges it faces, and the options that its owner, Guillermo Navallez, has in meeting those challenges. It then explores these options in the context of the business’ budget, performance reports and accounting information, as well as from an ethical perspective. Located in Sonora, Mexico, Guillermo Furniture has historically done well as a furniture retailer. Its success, however, has been challenged by the introduction of a major competitor, an international chain that has recently opened a store in the community. The result has been a rise in costs, a drop in prices and a smaller market share for the smaller company. Navallez, Guillermo’s owner, has explored a number of options for dealing with these challenges. Unwilling to merge with another company, he is left with three remaining options: investing in expensive new technology – in the form of a laser lathe – in order to reduce production costs, choosing to represent a Norwegian furniture manufacturer or focusing his efforts on marketing his patented furniture coating process. Budget, Performance and Accounting In order to make an informed decision, Navallez should begin by evaluating his budget. A budget is a quantitative action plan based on a company’s performance. A performance report provides information about variances in a company’s performance...
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...FIN/571 July 23 Guillermo Furniture Store Analysis , 2012 Guillermo Furniture Store Analysis Guillermo Navallez has done quite well for himself as owner manager of Guillermo Furniture store. Guillermo has been manufacturing quality furniture in Sonora, Mexico, making high-end and mid-end grade furniture. Several factors including a competitor who utilizes a high tech process and and a increase in businesses and people made the price of doing business more expensive for Mr. Navallez. He has watched as his profits have declined and his costs progressively increased. There are several options which Mr.Navallez has considered in an effort to return to being profitable. The three options he is strongly considering are investing in a high tech facility with laser lathes to cut the wood. This option is going to be expensive but with the robots doing the work on a 24 hour basis, it may be a viable option to cut costs. His second consideration is to become a broker for another manufacturer. He would have to adapt to becoming a distributor and not a manufacturer. The last option that Mr. Navallez has is to continue on the current path. There are several ways of determining the optimal choice for Mr. Navallez. A sensitivity analysis, and calculated net value for each option was conducted and the results are as follows. As we know that, the weighted average cost of capital is: WACC=Kd * 1-T * Wd + Ke * We This is defined as: Kd Cost of debt before tax 7.5% T Tax rate 42% ...
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...Self-Interested Behavior, a course of action most financially advantageous for themselves (Emery, et.al, 2007). According to the scenario, Guillermo’s Furniture Store, Guillermo Navellez, owner of local furniture manufacturing plant, has identified several key alternatives which will affect his decision regarding production, labor costs, organizational management, and organizational stability. After reading this paper, the reader will have an understanding of two key points. The first point is how business decisions are effected by various alternatives. The second point explains how managers analyze and evaluate alternatives to establish the best recommendation for the business operation and cash flow of an organization. Most organizations are approached with the concept of improving its business strategy, production sales, and even customers services to compete with its competitors. This philosophy is no exception to Guillermo’s Furniture Store. However, considering the Norway furniture company, Guillermo’s overseas competitors, has invaded the turf of Guillermo, Guillermo must acknowledge that he must identify various alternatives to keep himself abreast, and endorse a new approach to maintain the business edge. In the given chart below, Guillermo has acknowledged four key alternatives he must analyze to keep the legacy of Guillermo Furniture Store afloat. These chief alternatives are as follows, consolidate with competitors, become sole distributor, market flame retardant, and implement...
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...uillermo Furniture Store Analysis Week one individual paper was centered on Guillermo Furniture Store location, the production of work and the company finance. Week three individual paper will state three alternative measures for Guillermo Furniture Store working capital policy by weighting the average cost of capital, and by implementing multiple valuation techniques toward reducing the business risk. Business within Guillermo Furniture Store started to decline in the early part of 1900s. The effect of outside influences has opened up a new era of business for foreign competitors. The competitors have allowed their customers to crave the new technology of produced furniture by creating a lower price range. The simulation stated that housing were inexpensive, the location of business had mild weather, and beautiful scenery, along with uncongested roads a new International Airport and plenty of new development (University Of Phoenix, 2011). Alternatives To make a profitable decision the implementation of alternative needs to be considered. The three alternatives investment projects (the currently used approach, the high-tech approach, and the broker approach) needs to be categorized in a distinct order. The currently used approach consists of the company not changing their position, they will continue with their business lifestyle since the 1900s. High-tech alternative will allow the company to produce more custom furniture at a lower cost. The broker alternative...
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...Guillermo Furniture Store Concepts Introduction Guillermo’s Furniture Manufacturing facility has been located in Sonora, Mexico successfully until the late 1990’s. Guillermo Navallez noticed a decline in profit and found that he would need to make changes to his manufacturing establishment in order to financially stay in business. Navallez used concepts from staying in the competitive economic environment and using accounting and research to establish some potential changes in Guillermo’s future endeavors. The Competitive Economic Environment Navallez saw through his loss of profit that there was competition for his manufacturing facility. Through researching his competitors he came up with future options for his manufacturing facility to stay in business and grow. Several of the concepts and principles of the financial environment were used. Navallez obtained information about the overseas competitor using high-tech machinery compared to the labor force. Profit margins were shrinking and decisions were going to be necessary. Navallez had options of consolidating into a larger organization through acquisition or merger. Navallez wanted to stay in business and be active but not take any more time away from his family. Principles Used The Principle of Self-Interested Behavior: People Act in Their Own Financial Self-Interest. (Emery, 2007, p. 20). This principle uses the theory of choosing the most financially opportunity. “In such impersonal transactions, getting the most...
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...Guillermo Furniture Store Analysis Guillermo Furniture Store Analysis An account system is nice to have, but is the system is worthless unless it can produce data that is useful to managers, employees, lenders vendors, owners, investors and other individual firms that have a financial stake in your business (Nelson & Economy, 2010). Guillermo flex budget must contain accurate information. When computing the numbers on the flex budget the information must make sense. The numbers must be computed correctly and information shared to lenders and vendors must have no errors. Lenders and vendors need to know your company’s financial health to decided whether to extend credit (Nelson & Economy, 2010) . Ethics is important when preparing a budget because integrity is essential to accountants because they provide information that users must trust to be right. User of the accounting information cannot directly assess the quality of that information (Horngren, Sundem, Stratton, Burgstahler, & Schatzberg, 2008 p. 30) . If the information provide is biased then the information is no use or value to the user. Ethical considerations in the preparation and subsequent use of the budget Code of ethics requires an ethics analysis for performance tool to avoid any conflict of interest and bias within a budget. Conflict of interest, include the use of position for personal gain and solicitation or receipt (Menson, 1990). Budgeting process is to be conduct in a correct manner...
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