Guillermo's Furniture Store Concepts

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Guillermo Furniture Store Concepts
FIN/571: Corporate Finance Guillermo Navallez, owner of Guillermo’s Furniture Store (GFS) experienced diminishing profit margins as operating costs increased and prices decreased steadily during the late 1990s. Two factors triggered the aforementioned. One, a new competitor started using computer programmed machinery to make high quality, but less expensive furniture. Two, improved infrastructure and new businesses created jobs, creating an influx of workers and substantial increases in labor costs.
The purpose of this paper is to explain 12 finance principles and concepts learned in week one and discuss how Navallez can apply said concepts to maximize his company’s value (University of Phoenix, 2009). The scope of this discussion encompasses the 12 concepts foundational to corporate finance. The 12 principles are self-interested behavior, two-sided transactions, signaling, behavioral, valuable ideas, competitive advantage, options, risk-return trade-off, diversification, capital market efficiency, and time-value-of-money (Emery, Finnerty, & Stowe, 2007).
Principles and Concepts Self-interested behavior dictates that people tend to act in their best financial interest. For Navallez, selling or another company acquiring GFS was not in his best financial interest. Conversely, he believed that transforming his company into a distributorship was financially viable and would allow him to maximize family time. GFS and its Norway competitor would each benefit from an alliance because their two-sided transaction would not comprise a zero-sum game where one company gains at the expense of the other. GFS would assume a distributorship role for its competitor and said competitor would have access to a robust distribution network. Signaling describes actions conveying information, and behavior is a result of signaling. Imitating…...

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