Guillermo's Furniture Store Concepts

779 Words4 Pages
Guillermo Furniture Store Concepts FIN/571: Corporate Finance Guillermo Navallez, owner of Guillermo’s Furniture Store (GFS) experienced diminishing profit margins as operating costs increased and prices decreased steadily during the late 1990s. Two factors triggered the aforementioned. One, a new competitor started using computer programmed machinery to make high quality, but less expensive furniture. Two, improved infrastructure and new businesses created jobs, creating an influx of workers and substantial increases in labor costs. The purpose of this paper is to explain 12 finance principles and concepts learned in week one and discuss how Navallez can apply said concepts to maximize his company’s value (University of Phoenix,…show more content…
The principles of valuable ideas and comparative advantage interrelate. Valuable ideas relate to creating a unique and financially rewarding product or service. Comparative advantage is about productive forces optimizing their resources by producing things they make economically and paying others to produce things they cannot. Navallez could profit by manufacturing and marketing his patented furniture coating process using existing supply chains, including the Norwegian company. An option is the right to exercise a choice sans obligations. Navallez can exercise his option to invest in new technology, assume a distributorship role, or maintain his business’ status quo. However, when exercising an option, he should factor incremental benefits, which is the net additional benefit that one option provides over others. Navallez would have to determine the least costly and most profitable option, including incremental cash flow. He could determine such by comparing accounting net income versus cash flow. A caveat to Navallez is to foster a dispassionate approach to sunk costs when assessing incremental benefits. Risk-return trade-off is choosing the level of returns commensurate with the accompanying degree of risks. Navallez should use information gleaned from his research to determine which option exercises least financial risks and offers most financial rewards. To mitigate risk, he could diversify his business

More about Guillermo's Furniture Store Concepts

Open Document