Week 1 Fin

Guillermo’s Principles

FIN/571 Corporate Finance

January 24, 2011

Jesse Carter

Guillermo’s Principles

A company’s value is determined by financial decisions. Guillermo Navallez’s store is in need of decisions that will cause changes and restructuring to survive in the current market. The following discourse will illustrate the store’s financial concepts through by incorporating the principles of corporate finance.

Principles

The 12 principles represent the foundation of financial management. The principles are practiced in finance to make decisions and increase corporate value (Emery, Finnerty, & Stowe 2007). Guillermo Navallez and his furniture face decisions of change to survive in the market. The principles are divided into three following categories: competition in an economic environment, value and economic efficiency, and observing financial transactions (Emery, Finnerty, & Stowe 2007).

Competition

A competitive edge is necessary in order for Guillermo’s Furniture Store to survive and outshine competitors.

The Principle of Self-Interested Behavior can be beneficial to Guillermo. As many companies have merged or have been acquired by other firms, Guillermo notes that he is not interested in a merger or acquisition. He does not want overhead costs to be drained; neither does he want to give up the time a merger or acquisition will take from spending time with his family (University of Phoenix, 2011). The principle is open-ended concerning money being more important than other factors, leaving the decision to individual person or firm (Emery, Finnerty, & Stowe 2007). Furthermore, the principle can allow for actions that can eliminate other actions and lower opportunity costs to provide a competitive edge (Emery, Finnerty, & Stowe 2007). Guillermo can take actions that can eliminate others.

The Behavioral Principle is based on information and also applies the Signaling Principle. The Signaling Principle states that actions...