Guillermo’s Furniture Store Financial Concepts
University of Phoenix FIN/571
November 18, 2012
Guillermo’s Furniture Store Scenario
Guillermo’s Furniture Store scenario outlines a furniture business in Mexico, owned and operated by one man, Guillermo Navallez, who until major competition moved in was operating a fruitful custom furniture business. Guillermo operated successfully because of a varying abundance of local wood and inexpensive labor costs. With the encroachment of a high-tech business that could provide goods at low overhead costs and the rising cost of labor because of an incursion of people and jobs Guillermo’s profits shrank considerably. Guillermo implemented a ...view middle of the document...
The Principle of Valuable Ideas: Extraordinary Returns Are Achievable with New Ideas
Guillermo employs the Principle of Valuable Ideas in his idea to partner with the competition in Norway to become their distributor in the United States. This allows Guillermo to profit from the other company’s sales within the United States without experiencing the cost of manufacturing the products himself (Emery et al., 2007).
Principle of Incremental Benefits: Financial Decisions Are Based on Incremental Benefits
Guillermo exploitation of the Principle of Incremental Benefits is another benefit of partnering with his competition in Norway. Guillermo will not benefit with a one-time, large sum of money through this deal, such as if he would have sold his business to a local competitor. He will benefit however from long-term, smaller payments as each local sale of the competitor’s goods occurs. This will benefit Guillermo in a longer term than a onetime sale of his business that will not allow profits to continue (Emery et al., 2007).
Principle of Risk-Return Trade-Off: There Is a Trade-Off Between Risk and Return
Guillermo also uses of the Principle of Risk-Return Trade-Off. By using the implementation of the laser cutter and partnership with an overseas company to turn his company around he does inherit certain risks. The cost of the laser cutter is an extensive, up-front cost however its benefit is that it drastically reduces labor costs after the acquisition. Partnering with a competitor in Norway also carries risks inherent with doing business with overseas companies. The geographic nature of the...