Guillermo Furniture Store Analysis

Guillermo's Furniture Store Scenario

      Several alternatives are available to the management of Guillermo's Furniture Store.  Three different alternatives will be presented that are available for Guillermo's use that could influence the optimal Weighted Average Cost of Capital (WACC) of each option. This is supported by techniques that will reduce risk for Guillermo.

Problem Statement

  Guillermo's Furniture store is facing competition from foreign competitors that has put them in the position of re-evaluating how the company maintains a business structure that would allow them to be more competitive in the industry sector. Several alternatives have been looked into which will be discussed further in the following questions:   What changes can be implemented to enhance the way Guillermo's currently conducts business and maintains a cost benefit to the company? Can Guillermo increase profits and production while decreasing the costs to labor? Can restricting of the company occur to maximize costs without losing a competitive edge?   This paper will look at the questions and discuss what can be accomplished with minimal risk and high return value.

Weighted Average Cost of Capital

Guillermo's current assets consist of cash, accounts receivables, inventory and pre-paid insurance for an approximate amount of 400 million. The amount of debt the company is carrying is estimated to be 300 million. If the firm cannot realize any future growth in revenues, then the value of the firm has decreased.   If Guillermo is trying to raise cash for financing, the financial sheet that would be presented to potential investors must show that the company is earning enough on its' existing assets to satisfy creditors and investors.

According to the website, Value Based Management.net, WACC is an expression of cost and is used to see if intended investments or strategies, or purchases are worth the risk to seek. Therefore, the following projections will be proposed if this...