Fin 571 Week 6

Topics: Cash flow, Net present value, Generally Accepted Accounting Principles Pages: 6 (2305 words) Published: May 13, 2012

Guillermo Furniture Store Scenario 
University of Phoenix

Guillermo Furniture Store Scenario
Guillermo Navallaz is the proud owner of Guillermo’s Furniture Store located in Sonora, Mexico. He chose this area because of its excellent supply of timber for the variety of tables and chairs produced by his company. Business was going well until the late 1990s’ when two events caused a decline in Guillermo’s business. First, a new overseas competitor entered the Sonora furniture market with their high-tech approach that provided furniture to exact customer specifications at low prices. The second event was that the community of Sonora began to grow. The increase of people and jobs raised the cost of labor significantly and Guillermo experienced shrinking profit margins as prices fell and costs rose (University of Phoenix, 2011).  In order for Guillermo to increase his profits, maintain his market share, and have an advantage over his competitors, he must look at alternative projects to improve business. The object of this paper is to make a recommendation for Guillermo to follow based on the financial analysis of the data presented and to evaluate three alternatives for Guillermo to consider. Once a course of action for Guillermo to follow is agreed upon, the team will analyze the financial data to support their recommendation, which will address the issue of foreign competition and labor cost. The analysis will focus on how the alternative chosen will help Guillermo increase profits over the next five years and lower all the costs involved in producing or distributing the furniture. The paper includes a Cash Flow Budget, including assumptions, which will be based on the projected sales and expense budget for the year and any capital investments the company projects over the next five years. 

Summary of Three Alternatives 
Guillermo is considering three main alternatives. The first alternative is for Guillermo to increase its technology. A new competitor has moved into the Sonora area and has decreased sales for Guillermo because of its high-tech approach to sell furniture to exact customer specifications at significantly lower prices. Their production uses computer-controlled lasers to generate exact cuts in the wood. Robots are used to perform this specific movement thereby reducing the need for labor. The cost of implementing the new technology is extremely expensive. However, the reduction in labor and the ability to shift between products quickly could offset this additional cost considerably (University of Phoenix, 2011). The next alternative to take under deliberation is for Guillermo to become a broker by converting the factory from manufacturing to distributor. There is a competitor that functions out of Norway and they are in search of conduits to distribute in North America.   Should Guillermo choose to be that conduit, he would need to coordinate with his current distributors and become the delegate for the company out of Norway, which would move the Guillermo Furniture Store from manufacturing to distribution primarily (University of Phoenix, 2011). The final alternative to evaluate is for Guillermo to add another product to the finish of the furniture. Guillermo has developed a new coating for his furniture and has patented the process. The process creates a flame-retardant and stain resistant coating that is applied to the furniture. The flame retardant component of the coating has a market but not as much interest has been expressed in the finished coating itself. There is another comparable product that would add the same amount of value as that of the patented flame retardant coating (University of Phoenix, 2011).

Best Course of Action for Guillermo Furniture
The best course of action for Guillermo Furniture to take is to invest in the new high-tech computer controlled laser lathe for furniture production.   This increased technology allows for...
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