...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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...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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...The Guillermo Furniture Store has been struggling to remain profitable. Guillermo Navallez needs to make some changes to turn things around. One of his options is to go through a merger or acquisition but Navallez does not prefer this option. An alternative option is for the company to invest in a high-tech solution which will greatly reduce production costs (University of Phoenix, 2011). Lastly, Navallez has the option of becoming a representative for another furniture manufacturer and moving his company from primarily manufacturing to primarily distribution (University of Phoenix, 2011). This paper will analyze the various alternatives, while looking at the optimal weighted average cost of capital (WACC), net present value (NPV), and reviewing a sensitivity analysis and valuation techniques. Weighted Average Cost of Capital (WACC) The Guillermo Furniture Store should choose the option that will give it the best competitive advantage. The company needs to determine the WACC in order to determine the minimum return needed on an investment. WACC is the, “weighted average cost of the components of any financing package that will allow the project to be undertaken,” (Emery, Finnerty, & Stowe, 2007, p. 197). For example, if the WACC is 5% a company should not invest in any projects that will provide a return lower than 5%. The WACC of the Guillermo Furniture Store is calculated as follows: Capital: Bank loans: $936,628 + $29,238 = $965,866 at 7.5% = 80.4% of Capital and 6.03%...
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...Guillermo Furniture Store Analysis FIN 571 May 20, 2012 Guillermo Navallez has had a very successful furniture business in Sonora, Mexico. Lately, however, the retail environment has changed. Competition has moved in to the area, and labor costs have risen. This has caused Guillermo’s profits to decrease significantly. Guillermo now needs to research options for his business, in order to stay competitive in the market. One option would be to purchase automated equipment that would make his furniture precisely as he designed, and significantly reduce his labor costs. The other option would be to become a distributor to a furniture company in Norway, and sell both his own, and the other company’s products. This paper will analyze the different options available to Guillermo, and the financial outcomes of each alternative. It will determine the Weighted Average Cost of Capital, as well as the multiple valuation techniques of the available options, and make a final recommendation as to which alternative Guillermo should explore. While weighing his decision, Guillermo must analyze the income potentials for each alternative at the current production rate, and at another lower rate, to ensure he would be able to stay in business in the demand for his products dropped. It is not realistic to only look at one rate, as business cycles tend to rise and fall, and Guillermo needs to be able to ride the highs and lows of the retail market, and be able to keep his business. ...
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...Guillermo Furniture Store Analysis FIN/571 - Corporate Finance December 17, 2012 Introduction Guillermo Furniture Store is a large manufacturer furniture store located in Sonora, Mexico. They specialize in the production of custom made furniture. Due to changes in the industry and local community Guillermo Furniture store along with other small competitors are beginning to notice a reduction in their businesses (Scenario: The Guillermo Furniture Store, 2012). The first of the changes that Mr. Navallez the owner of Guillermo Furniture Store and management team will be forces to deal with is an overseas competitor using high tech equipment and approach to not only enter but to also succeed within their market, and the second has to do with changes in the local economy. In an effort to determine an appropriate response to these changes, Mr. Navallez and his team has begun analyzing these changes that are affecting his business. Mr. Navallez does have a few ideas on how to move forward but will have to research more on the correct capital budgeting that is best for his organization. Capital budgeting is defined as the process of choosing the organizations long term capital investment strategy, this often consist of things like land, property and equipment (Emery, Finnerty, & Stowe, 2007). Alternatives With the changes the Mr. Navallez and his team are tasked to deal with there are some alternatives that they must decide on to adjust to the new market. They must...
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...Guillermo Furniture Store Analysis FIN/571 July 9, 2012 Guillermo Furniture Store Analysis The furniture industry can be a profitable one many times, but it can also be costly when an opportunity arises and is not managed appropriately. Guillermo Furniture Store, in Sonora Mexico, is a manufacturer of furniture. The capital budget selections all correlate with choices the organization has to make. Guillermo has several selection opportunities; he is restricted by past and present choices. Guillermo’s Furniture Store is the largest in the area and has been the main staple for many years, but new competitors have claimed a part of the business creating a challenge for him to act. Guillermo’s operating environment has changed and is now mandated to decide on one of three investment opportunities. The ultimate value of what capital budget opportunities are available to Guillermo will be evaluated by the net present value they have to offer. Only a positive net present value will add value whether the proprietor is an individual or a shareholder. The rise in competition is causing a decreasing profit margin. The paper will provide the evaluation of the financial concepts in the conclusion of the appropriate alternative necessary to improve the business, evaluate changes the owner is creating, and show how the capital budget analysis will afford Guillermo with the necessary data to acquire the best return on his asset. As the largest furniture industrial manufacturer, Guillermo...
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...Guillermo Furniture Store Analysis Olakunle Corporate Finance/FIN 571 August 15, 2011 Introduction The Guillermo Furniture Store is the largest manufacturer of furniture in Mexico, and it has made furniture of different types for several years. Until the late 1990s, when Guillermo’s competitor started carting away some of its businesses thereby affecting its revenue, the business had thrived very well in the sales of furniture. The new competition has latest state-of-the art manufacturing technology, which enables it to sell its furniture at a relatively reduced price because of lower cost of production (University of Phoenix, 2011) Competition brings the best out of business, so this has made Guillermo to want to step up production to a higher level by acquiring machineries to boost the quality of its furniture. The company’s biggest challenge is in trying to reduce production cost to meet up with competition. Guillermo has three options, which include working the same way it always has handled projects without making any changes, to improve production level and reduce production cost by investing in modern machineries, the third option is for Guillermo to distribute or broker for another furniture company. This situation best suits a competitive economic environment; it makes investors to make their products and services better and cheaper to attract patronage by customers (University of Phoenix, 2011). This paper will lay emphasis on analyzing Net Present Value...
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...Guillermo Furniture Store Analysis Guillermo is properly positioned and ready to compete. The technology-infused manufacturing alternative gives him the ability to maintain a competitive edge. After examining the business with a cash flow and the problems that confronted it, a five member management team determined the best course of action going forward. Some businesses are proactive while others are reactive. The financial management team took a reactive approach because Guillermo previously was lackadaisical with no worries, a booming business and in total control. The chosen alternative will not compromise that control. Although unable to predict the arrival of new competitors, he has decisions to make. The management team evaluated his errors and hereby proposes alternative measures to combat possible loss of business and maximize profit. Reviewing the possible pitfalls, a financial assessment seeks to eliminate those pitfalls and place GFS as a front-runner in the furniture manufacturing industry. The alternatives are for review, modification and consideration to keep this thriving business alive. Alternative one seeks to increase technologically-savvy equipment to save time and reduce labor costs. Labor cost reduction does not necessarily begin with workforce reduction. The management team suggests focusing on working smarter by eliminating waste and improving performance. Alternative two examines a shift from primarily manufacturing...
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...Tootsie Roll Industries, Inc.: Loan Package Tootsie Roll Industries, Inc.: Loan Package Tootsie Roll Industries is applying for a loan package that will help them achieve superior things. There are many opportunities that can be accomplished by allocating money to different areas. The different areas include healthier ingredients, expansion, and advertising. These areas will increase the production and success of the Tootsie Roll Industries, Inc. Within this loan package, there are many exciting things that will improve and perfect healthier candies at Tootsie Roll Industries all over the world. Strategic Applications With the proceeds from the loan, the plan that Tootsie Roll will use the loan to improve the research and development team to develop healthy ingredients for the candy bars that is already on the market. Tootsie Roll will expand its production to overseas areas and to the newer markets by hiring staff, installing new machines, and constructing new facilities to produce the company’s candies. They will also expand they advertisement business, by using, and enhancing their existing websites, to include Facebook and Twitter. By using the network, Tootsie Roll with be able to reach new customers looking for healthier snacks. “Tootsie Roll will also use the proceeds to expand their overseas operations, to include bilingual areas that will serve the bilingual customers of every nationality it serves”. (Keeling, 2012, p...
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...Legal Forms of Business Consider each of the following forms of business: sole proprietorship, partnership, limited liability partnership, limited liability company, S corporation, franchise, and corporate form. Develop scenarios in which each of these forms of business would be the preferred form. For each scenario, justify why the corresponding business form is preferred. In today business world entrepreneurs are presented with many forms of business organization to choose from to conduct their business. Every form of business brings advantage as well as disadvantage and the selection of the legal form of the business organization available should base on according to Cheeseman (2010), “factors, including the ease and cost of the formation, the capital requirements of the business, the flexibility of management decisions, government restrictions, personal liability, tax consideration, and the like.” (Cheeseman, 2010). Sole proprietorship, partnership, limited liability partnership, limited liability company, S corporation, franchise, and corporate are the most known entrepreneurial forms of conducting nosiness. Below are you will find scenarios in which each of these forms of business would be the preferred form and justification why the corresponding business form is preferred. Sole Proprietorship Sole proprietorship represents the simplest form of the legal business organization where the owner, called in this form of business organization the sole proprietor, is...
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...especially concerning when it comes to short-term credit (Emery et al, 2007). A high-quality working capital policy would also free up cash, which may be allocated to strategic areas for the company’s growth. LS must cease from financing shortages through credit lines with heavy reliance on selling inventory and receiving prompt payments. To understand the changes needed, a review of LS current policy will be analyzed and alternative working capital policies will be compared. Recommendations will be represented regarding which policy LS should implement. Alternative working capital policies The first alternative working capital policy is for LS to negotiate better collection on sales terms with Mayo Stores. The initial arrangement is to receive 20% collection on sales in the first week and 80% in the following week (University of Phoenix, 2012). The collection arrangement needs to be negotiated to 40% collection on sales in the first week and 60% in the following week. As an additional incentive, customers will receive 1% off their entire purchase if paid in full by the end of business on the seventh day. The second alternative working...
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...Guillermo Furniture Store Concepts Paper Guillermo Furniture Store Concepts Paper Many businesses face circumstances that require concepts and principles. There are many principles that should be applied to running a good business. Competitors are looking for the competition and as a business person one cannot expect the other party to be economically rational with the competition (Emery, Finnerty, & Stowe, 2007). The Guillermo Navallez owner of Guillermo Furniture Store located in Sonora, Mexico has been in business for years making furniture with a good supply of timber for the variety of tables and chairs, relatively inexpensive labor prices, and its handcrafted products, is known as one of the largest furniture manufacturing stores in North America. In the late 1990’s the furniture store took a shocking turn due to the competition from overseas that entered the business using a high tech approach causing a decrease in Guillermo’s business. In addition, Guillermo watched how his competitor woke up the community from its rock-bottom prices, and how one of the largest retailers in the nation’s headquarters down the road influenced and expanded considerably which raised the cost of labor substantially causing Guillermo’s profit margin to shrink as prices fell and costs rose (University of Phoenix, 2009). Guillermo is now faced with making some decisions to help his business. Guillermo should be wise about his decisions. It may be hard to swallow...
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...Cost Analysis and Control System: Guillermo Furniture Store Accounting/ACC561 October 04, 2010 Cost Analysis and Control System: Guillermo Furniture Store Guillermo Navallez (Navallez) has several important decisions to make regarding the future of Guillermo Furniture Store (GFS). Computations of return on investment, residual income, economic value-added data, and break-even analysis provide insight for decision-making and development of optimal performance measures. Choosing the most lucrative course of action requires analyzing cost relationships and behaviors, developing a management control system that helps set production standards and goals, and ties managerial efforts to organizational goals. Measures of Profitability GFS measures the performance of the organization by linking balance sheets from previous periods in 2008 and matching its sales, cost of goods sold, and other expenses in its income statement for June 2008 (see Table One). The table includes return on investment (ROI) ratio, residual income, and economic value-added (EVA) amounts that measure investment-center performance. Table One Return on investment (ROI) is a measure of financial performance defined as income divided by the investment made to earn that income (University of Phoenix, 2010, Week Six Supplement). The calculated rate of ROI uses percentages as a means of simplifying comparisons between different sizes of investments within the organization, and between different...
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...Running head: Guillermo Furniture Store The Guillermo Furniture Store Orlando Hopper ACC/561 – Accounting University of Phoenix (Instructor’s Name) October 4, 2010 The Guillermo Furniture Store Guillermo Furniture Store is one of the largest furniture company’s in North America, which is located in Sonora Mexico. Guillermo is a very establish and successful businessmen. Guillermo over the last several years has specialized in making handcrafted premium grade products. Guillermo belief’s is in the quality of his product and prices. Guillermo has been able to charge high-end prices and carry a low labor cost and budget. Guillermo is able to purchase his supplies at low cost which are from Mexico. Till recent, Guillermo furniture company was the only one in his area. With a foreign competitor entering the furniture market and offering the same furniture and selling for a less price which is using high-tech equipment to build their furniture and has threaten Guillermo’s business, which has felt some decline in the result of competition. Guillermo will have to make some important decisions that can affect his...
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...Guillermo's Furniture Store Scenario Alysia Wright FIN571 June 4, 2009 Micha Edwards Guillermo's Furniture Store Scenario Guillermo Furniture Store is a large furniture manufacturer that is located in Sonora, Mexico. Labor was considerably inexpensive and the location had ample supply of timber for furniture the company produced. In the early 1990s, business for the company started to decline caused by outside influences. The decline began when a new foreign competitor entered the market. The new competitor used technologically advanced methods that produced customized furniture at a lower price. Another disadvantage for Guillermo was that one of the largest retailers was only a few miles from the company and had a major impact on the communities in Sonora. “With inexpensive housing, mild weather, beautiful scenery, un-congested roads, a new International Airport, and plenty of development, an influx of people and jobs raised the cost of labor substantially. Guillermo watched his profit margins shrink as prices fell and costs rose” (University of Phoenix, 2010). Guillermo Issues Guillermo is facing two issues he did not have to deal with prior to the larger company entering his market with their hi-tech machinery producing furniture at low costs. First, Guillermo will have to alter his pricing structure if he wants to remain competitive with the new company. For years Guillermo has had a monopoly on the market and could charge top dollar for this custom made furniture. Because...
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