October 31, 2011
Guillermo Furniture Store Concepts
This assignment sets out to explain the pertinent financial concepts and principles found in chapters two and three of the text Corporate Financial Management by (Emery, Finnerty, & Stowe, 2007) and how they relate to the context of the Guillermo’s Furniture Store scenario. Guillermo’s was a leading furniture manufacturer who enjoyed inexpensive labor and convenient supplies of raw material next to his location in Sonora, Mexico, until in the late 1990s when his downturn started. An overseas competitor from Norway entered the area with a high-tech approach to the furniture manufacturing business. They offered to make product to exact specifications and at an all-time low price. Besides, challenge came from the burst of development in the area and an influx of people. This hindered the safe economic environment Guillermo’s enjoyed.
Profit margins diminished as Guillermo’s was placed in a competitive environment. He applied the behavioral principle, which states that when all else fails look at what others are doing for guidance. He researched his competition and found that they were consolidating into larger organizations through merger or acquisition. However, because of his independent nature, he did not delight in such an idea. His take on the trend was quite the opposite of the Self-Interested Behavior principle, which says that when all else is equal, all parties to a financial transaction will choose the course of action most financially advantageous to themselves (Emery, Finnerty, & Stowe 2007, p. 20). The course of action that was most financially advantageous to the company was to research his competition’s approach and explore new approaches to the business. Taking another principle into consideration, the Principle of Two-Sided Transactions,...