May 11, 2010
University of Phoenix
Corporate Finance 571
Sonora, Mexico is the location of a large furniture manufacturer in North America Gillermo Furniture Store. Labor was cheap and the area had a good supply of timber for the furniture produced by his company. However, beginning in 1992, business started to deteriorate due to some developments outside his control. First, a new foreign competitor entered the furniture market. This new competitor used a high-tech approach to provide furniture to exact specifications and did so with rock-bottom prices. Second, “the sleepy communities in Sonora woke up. One of the largest retailers in the nation’s headquarters was just a few miles down the road, and its influence had expanded considerably. With inexpensive housing, mild weather, beautiful scenery, un-congested roads, a new International Airport, and plenty of development, an influx of people and jobs raised the cost of labor substantially. Guillermo watched his profit margins shrink as prices fell and costs rose.” (Guillermo Scenario, University of Phoenix, 2010).
This paper presents three alternative solutions available to Guillermo. Each alternative solution will include a sensitivity analysis outlining the pros and cons as well as the net present value of future cash flows for each of the alternatives. Based on the analysis of each alternative, a recommendation will be given using key financial principles.
Guillermo had been in the business for a number of years enjoying much success due to the location of the business and labor being relatively inexpensive. There are a few concerns for Guillermo that may cause the company to change the way it does business. Guillermo management has done some research and found that their competitors are using a high tech approach providing furniture to the exact specifications at... [continues]
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