Guillermo Furniture Analysis Paper University of Phoenix Corporate Finance FIN/571 Guillermo Furniture Analysis Paper . Guillermo Navallez is the owner and operator of the Guillermo Furniture Company. Mr. Navallez has operated this store for year in the Sonora, Mexico area and had built a positive rapport with that community. Recently, Mr. Navallez has two issues he is facing. One issue is an overseas competitor and the other is the high cost of labor. The overseas competitor is making furniture using new and innovative technologies.
Because Guillermo furniture specializes in one-of-a-kind hand crafted furniture, his cost of labor is extremely high because of the time that is needed to create each piece. Because of this, Guillermo is losing profit as well as customers; Mr. Navallez has been trying different ideas to help improve his business. . At this point in time, the only option for the Guillermo furniture store is simple. This company must join the ranks of its competitors in order to stay in business.
Guillermo needs to transition from handcrafted pieces into using the high tech technology like its competitors. This technology will cut costs on materials as well as labor, and still supply quality furniture. Guillermo Furniture has an option to be taken over by its competitor. This option is not received well by Mr. Navallez. He has no intention of being bought out. Because he does not want to lose everything that he has worked for, Mr. Navallez has to put a plan into action immediately. He is concerned about his family and his responsibility to take care of them.
In The company used the “what-if” example, it would allow the business owner to take a combination of his projections and come up with one resolution. If he includes numerous investments it will help to prepare a present value index. Mr. Navallez could then capitalize on his investments. The WACC is established by the use of multiple assessments Mr. Navallez has been reviewing different alternatives for the Guillermo Furniture Store. A company’s assets are financed by either debt or equity. By taking a weighted average, you can see how much interest the company has to pay for every dollar it finances.
WACC is the overall required return on the company as a whole and, it is often used internally by company directors to determine the likelihood of expansion opportunities and mergers. It is the appropriate rate to use for cash flows with risk that is similar to that of the overall firm (Investopedia, 2011). The first option is to keep running the business as usual and not making any changes. The net present value analysis can be run by and outside entity to show whether or not Guillermo is operating at its highest while in business.
This will show the net present value after taxes. The Net Present Value is the difference between what something is worth and the present value of its expected future cash (Emery, Finnerty, & Stowe, 2007, p. 187). Next, the payback period is the number of years it takes the business to recover from the original investment. If $300 million is invested within a certain time period the company will be able add more revenue to the money that was originally invested into the company. Payback periods can take a long time or a short time depending on the circumstances.
On the other hand, it will eventually pay off in the end. For Mr. Navallez and Guillermo Furniture, a payback time frame is the best option to help capitalize on the reconstruction of his business. Capital budgeting is the process of choosing a long-term capital investment According to (Emery, Finnerty, and Stowe). This includes investments in land as well as equipment. Capital budgeting is knowledgeable to the store because of Guillermo’s assets, products, and services that the business provides. There is no limit to the numbers of possible investments that can’t be reached.
However, based on present and future selections, constraints for the future will be very slim. Planning of these choices will help to capitalize on assets and improve the profits in the future. In The Guillermo Furniture Store Scenario, capital budgeting projects are judged by value. We also find out that capital is worth more than it costs, because stock prices will increase and then the wealth by the amount of capital will be different. In conclusion The Guillermo stock would increase if the company took on a capital budgeting project with a positive stock value and decrease if the stock value is negative.
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