Guillermo Furniture Store Essay

1464 Words Jun 17th, 2012 6 Pages
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
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If Guillermo used performance reports to fine-tune his budget, he could evaluate what his profits as well as his labor and production costs would be if he decided to sell coated furniture, maintain his high-end production while importing the Norwegian furniture, or invest in the laser technology. Comparing the projections for his options will give Guillermo an idea of what financial outcome he should expect from each option. Equally important, though, is a careful evaluation of how much each option would cost him in terms of initial investments. This is especially true with the laser lathe, as the initial investment would be high should he choose to pursue this option. Additional accounting information necessary to make an informed decision is to compare potential capital and investment costs to potential net income before taxes on each available option. Guillermo does not like the idea of a competitor taking over the furniture business; he is also not interested in merging his company with another. Guillermo should consider the principle of Risk-Return Trade Off, which states that if a person wants to have a chance at some great outcomes, Guillermo will have to take a chance on a really bad outcome (Emery, Finnerty, & Stowe, 2007). The sensitivity analysis discusses the difference between alternatives that Guillermo can choose from. Because of the

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